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HARVARD  UNIVERSITY  PRESS 

CAMBRIDGE,  MASS.,  U.S.A. 


HARVARD   ECONOMIC   STUDIES 

PUBLISHED   UNDER  THE   DIRECTION   OF 
THE  DEPARTMENT  OF  ECONOMICS 

VOL.  XVII 


THE 
STATE  TAX  COMMISSION 

A  STUDY  OF  THE  DEVELOPMENT  AND  RESULTS  OF 

STATE  CONTROL  OVER  THE  ASSESSMENT 

OF  PROPERTY  FOR  TAXATION 


BY 
HARLEY   LEIST   LUTZ,  Ph.D. 

PROFESSOR  OF  ECONOMICS,  OBERLIN  COLLEGE 


AWARDED  THE  DAVID  A.  WELLS  PREZE  FOR 
THE  YEAR  1915-16,  AND  PUBLISHED  FROM 
THE  INCOME  OF  THE  DAVID  A.  WELLS  FUND 


CAMBRIDGE 
HARVARD  UNIV^ERSITY  PRESS 

LONDON:  HUMPHREY  MILFORD 

Oxford  University  Press 

I918 


^^ 


u 


3^^ 

« 


COPYRIGHT,  19 18 
HARVARD  UNIVERSITY  PRESS 


TO 
MY  WIFE 


377867 


PREFACE 

This  book  is  a  study  of  the  development  and  results  of  state 
control  over  the  assessment  of  property  for  taxation.  Histori- 
cally this  development  has  been  in  the  direction  of  a  steadily 
enlarging  sphere  of  state  activity.  Beginning  with  state  equahza- 
tion  of  the  local  assessments,  the  expansion  of  state  control  has 
brought  within  its  scope  central  assessment  of  the  property  of 
certain  classes  of  corporations  and  the  exercise  of  a  varying  degree 
of  supervisory  authority  over  the  original  assessment  of  property 
remaining  in  the  jurisdiction  of  the  local  assessor.  The  first 
chapter  outlines  the  administrative  evolution  which  produced,  in 
turn,  the  state  equahzation,  the  state  assessment  of  corporations, 
and  the  state  supervision  of  local  assessment.  Both  the  state 
board  of  equaHzation  and  the  state  board  of  corporate  assessment 
of  the  older  type  failed,  however,  because  the  nature  of  the  ad- 
ministrative problem  was  so  generally  misunderstood.  The 
situation  in  a  few  states  under  the  older  state  boards  of  equaliza- 
tion and  assessment  is  described  in  the  second  and  third  chapters. 
Under  the  state  tax  commission  there  has  been  the  beginning  of 
effective  coordination  of  all  parts  of  the  administrative  organiza- 
tion, and  the  beginning,  therefore,  of  a  solution  of  the  problem  of 
equitable  distribution  of  the  tax  burden.  The  discussion  of  the 
achievements  of  the  state  tax  commissions,  and  of  the  Kmitations 
under  which  these  bodies  have  done  their  work,  occupies  the 
remainder  of  the  book. 

This  study  was  begun  several  years  ago,  while  the  writer  was  a 
graduate  student  at  Harvard  University.  It  was  submitted  as  a 
doctoral  dissertation  at  Harvard  in  19 14,  and  is  now  pubHshed, 
after  a  thorough  revision.  The  foundation  of  the  whole  was  a 
visit,  in  191 1,  to  all  of  the  important  tax  commissions  then  in 
existence.  Subsequent  visits  have  been  made  to  some  of  these 
states  and  the  acquaintance  thus  estabUshed  has  since  been  main- 


Vili  PREFACE 

tained  and  broadened  through  correspondence,  attendance  at  the 
National  Tax  Conferences,  and  in  other  ways.  The  field  work  was 
made  possible  by  a  Sheldon  Fellowship  from  Harvard  University, 
for  which  grateful  acknowledgment  is  here  made. 

The  writer  is  glad  to  have  this  opportunity  of  expressing  his 
appreciation  of  the  assistance  rendered  to  him  by  a  large  number 
of  friends.  His  chief  obligation  is  to  Professor  C.  J.  Bullock,  at 
whose  suggestion  the  study  was  undertaken.  Professor  BuUock's 
friendly  encouragement,  tolerant  spirit  and  frank  criticism  have 
been  exceedingly  stimulating.  Thanks  are  due,  also,  to  Professor 
T.  S.  Adams,  who  read  the  manuscript  and  offered  numerous 
valuable  suggestions.  The  tax  commissioners  and  other  officials 
of  many  states  have  given  freely  of  their  time  and  the  fruits  of 
their  experience,  and  their  valuable  services  in  this  connection  are 
hereby  gratefully  acknowledged.  Some  of  these  officials  have 
read  portions  of  the  manuscript,  and  their  criticisms  have  been 
most  helpful.  The  writer  assumes,  however,  full  responsibility 
for  all  statements  in  the  text  concerning  the  work  of  any  tax 
commission. 

Finally,  the  writer  is  under  a  deep  and  lasting  obligation  to  his 
wife,  who  cheerfully  assumed  a  larger  share  of  the  common  burden 
through  the  long  years  in  which  this  book  was  being  written. 

H.  L.  LuTZ. 
Oberlin,  Ohio, 

November,  191 7. 


CONTENTS 

CHAPTER  PAGE 

I.  The  Evolution  of  Centralized  Administration  in  Taxa- 
tion    3 

II.  State  Boards  of  Equalization  and  Assessment  ....  47 

III.  State  Boards  of  Equalization  and  Assessment  (concluded)  84 

IV.  Organization  and  Equipment  of  the  State  Tax  Depart- 

ments    130 

V.  The  State  Board  of  Tax  Commissioners  of  Indiana    .  149 

VI.  The  State  Tax  Commission  of  New  York 182 

VII.  The  State  Tax  Commissioner  of  Massachusetts   ...  214 

VIII.   The  State  Tax  Commission  of  Wisconsin 237 

IX.  The  Board  of  State  Tax  Commissioners  of  Michigan  .  289 

X.  The  State  Tax  Commissioner  of  West  Virginia    .    .    .  330 

XI.  The  State  Board  OF  Tax  Commissioners  OF  Washington  .  352 

XII.   The  State  Tax  Commission  of  Minnesota 385 

XIII.  The  Kansas  Tax  Commission     424 

XIV.  The  Oregon  State  Tax  Commission 458 

XV.  The  Tax  Commission  of  Ohio 479 

XVI.  State  Tax  Commissions  in  the  Eastern  States  ....  511 

XVII.  State  Tax  Commissions  in  the  Southern  States  ...  555 

XVIII.  State  Tax  Commissions  in  the  Western  States    .    .    .  593 

XIX.  Conclusion 627 

BIBLIOGRAPHY 639 

INDEX 657 


THE   STATE   TAX   COMMISSION 


CHAPTER  I 

THE  EVOLUTION  OF  CENTRALIZED  ADMINISTRATION 
IN  TAXATION 

The  last  twenty-five  years  have  witnessed  a  remarkable  change 
in  American  tax  administration,  the  development  of  state  super- 
vision and  control  of  the  assessment  of  property  for  taxation. 
The  first  of  the  modern  permanent  state  tax  commissions  was 
established  by  Indiana  in  1891.  Today,  state  tax  departments, 
headed  either  by  a  single  official  or  by  a  board  of  tax  commis- 
sioners, are  found  in  thirty-five  states.  The  movement,  once 
begun,  spread  rapidly  as  the  improvements  which  were  accom- 
plished by  some  of  the  more  efficient  commissions  became  more 
widely  known  and  appreciated,  and  as  public  opinion  in  other 
states  became  more  intolerant  of  the  abuses  of  decentralization. 
The  chief  purpose  of  the  present  work  is  the  investigation  of  the 
actual  operation  of  the  state  tax  systems  under  the  guidance  and 
direction  of  the  new  tax  departments.  No  attempt  has  been 
made  to  write  a  history  of  state  taxation  and  the  little  historical 
material  introduced  is  intended  simply  as  a  setting  for  the  main 
body  of  the  work.  The  principal  emphasis  has  been  placed,  there- 
fore, upon  the  methods  and  results  of  central  tax  administration, 
and  practically  no  attention  has  been  given  to  those  other  aspects 
of  state  finance  which  have  been  as  yet  but  little  affected  by 
centralizing  tendencies. 

The  roots  of  this  latest  development  in  tax  administration  run 
back  in  two  directions.  One  root  is  found  embedded  in  the  modern 
movement  toward  greater  administrative  centralization,  a  move- 
ment which  is  the  natural  result  of  the  growing  complexity  of 
civiUzed  life.  The  tendency  toward  administrative  centralization 
has  been  widespread  and  has  influenced  the  course  of  develop- 


4     .  .  ,.  ,..,,....  THE  STATE  TAX  COMMISSION 

ment  in  many  fields  of  governmental  activity.  The  state  tax  com- 
mission is  the  logical  expression,  in  the  sphere  of  taxation,  of  this 
weU-nigh  universal  phenomenon. 

The  second  root  of  the  state  tax  commission  strikes  down  into 
the  historical  subsoil  of  the  general  property  tax.  This  fiscal  in- 
stitution has  long  served  as  the  principal  source  of  state  and  local 
revenues.  Partly  through  inertia  and  partly  through  a  dimly 
realized  preference  for  old  and  known  taxes,  changes  have  been 
made  slowly  and  with  difficulty.  In  form  the  general  property  tax 
has  remained  virtually  unmodified  in  most  commonwealths;  but 
numerous  administrative  experiments  have  been  undertaken  at 
different  times  and  places  to  keep  it  a  practical  and  fruitful  source 
of  revenue.  The  outcome  of  this  experimental  policy  on  the  ad- 
ministrative side  is  the  state  tax  commission,  the  characteristic 
function  of  which  is  supervision  and  control  of  the  process  of  local 
assessment.  Whether  this  latest  and  most  radical  administrative 
change  will  suffice  to  preserve  the  general  property  tax  against 
overthrow  from  without  or  dissolution  from  within,  time  alone 
will  reveal.  It  is  proving  extremely  doubtful,  however,  as  the  fol- 
lowing pages  show,  whether  centraHzed  administration  will  be 
able  to  rehabiHtate  that  tax,  though  fairly  satisfactory  im- 
provements over  the  old  conditions  have  been  effected  in  some 
states.  But  the  value  of  a  certain  degree  of  administrative  cen- 
tralization in  taxation  has  already  been  so  completely  demon- 
strated that  the  tax  commission  must  be  accepted  as  a  permanent 
organ  of  state  government,  the  services  of  which  will  be  essential 
to  the  successful  operation  of  almost  any  substitute  for  the  pres- 
ent tax  system.  The  experience  of  Wisconsin  with  the  income  tax 
and  of  Minnesota  with  a  classified  property  tax  is  conclusive  on 
this  point.^ 

In  view  of  the  importance  of  the  administrative  problem,  both 
in  practical  operation  and  for  the  course  of  future  development, 
it  is  rather  curious  that  in  the  literature  of  the  general  property 
tax  so  much  attention  has  been  paid  to  the  rigid  and  unchanging 
form  of  the  tax  system  and  so  Uttle  to  administrative  develop- 
ment and  requirements.  Apart  from  the  reports  of  the  special  tax 

^  See  below,  chs.  8  and  12, 


CENTRALIZED  ADMINISTRATION  IN  TAXATION  $ 

commissions/  the  space  that  until  recently  has  been  given  to 
administrative  questions  in  the  voluminous  literature  upon  the 
general  property  tax  has  been  entirely  inadequate  to  the  impor- 
tance of  this  phase  of  the  subject.  Writers  on  taxation  are  practi- 
cally unanimous  in  the  conclusion  that  the  general  property  tax  is 
a  hopeless  failure  under  modern  conditions;  but  in  directing  the 
bulk  of  their  discussion  to  the  advocacy  of  various  substitute  and 
reform  programs  they  have  been  guilty  of  a  noticeable  lack  of 
interest  in  the  administrative  evolution  that  has  been  in  progress 
in  the  past  half-century,  and  especially  in  the  past  twenty-five 
years.2 

Before  entering  upon  a  more  detailed  account  of  the  evolution 
of  the  state  tax  department,  the  whole  course  of  its  develop- 
ment should  be  briefly  summarized.  In  its  formative  stages  the 
administration  of  the  general  property  tax  was  highly  decentral- 
ized. There  was  less  need  of  central  supervision  of  assessments 
during  the  continuance  of  the  primitive  economic  and  pohtical 
conditions  under  which  this  tax  originated.  With  the  increase 
of  moveable  and  intangible  wealth,  however,  the  prevention  of 
inequalities  among  individuals,  tax  districts  and  classes  of  prop- 
erty proved  impossible  under  the  locally  administered  system  of 
uniform  taxation.  The  first  significant  step  toward  more  efficient 
administration  was  the  creation  of  boards  of  review  and  equal- 
ization. The  earliest  of  such  bodies  were  the  local  boards  created 
in  towns,  cities,  and  counties,  with  powers  intended  primarily  to 

^  About  twenty-seven  special  tax  commissions  had  reported  to  1897.  Their 
reports  are  reviewed  by  Chapman,  State  Tax  Commissions  in  the  United  States. 
Since  1897  there  have  been  more  than  fifty  special  investigations.  Briefer  reviews 
of  some  of  these  are  found  in  Seligman,  Essays  in  Taxation,  8th  ed.,  1913,  chs.  19- 
21. 

*  The  enlarged  space  given  to  administrative  problems  by  Seligman  in  the 
successive  editions  of  his  Essays  illustrates  the  point.  The  historj'  of  state  income 
taxation  also  illustrates  the  earlier  neglect  of  the  administrative  problem.  The 
programs  of  the  national  tax  conferences  have  shown  a  decided  shift  in  emphasis 
toward  a  greater  consideration  of  administrative  problems  from  1907  to  the  present 
time.  Cf.  also  the  very  brief  discussion  of  administrative  problems  in  Plehn, 
Introduction  to  Public  Finance,  3d  ed.,  1909,  pp.  252-257.  See  review  of  the  book 
by  Boyle,  in  Economic  Bulletin,  iii,  no.  i,  March,  1910,  pp.  45-47.  Very  suggestive 
of  the  present  trend  of  interest  in  the  National  Tax  Association  is  the  new  Bulletin, 
the  first  number  of  which  appeared  in  February,  1916. 


6  THE  STATE  TAX  COMMISSION 

be  used  in  checking  and  correcting  evasion  and  undervaluation. 
Later  came  the  state  boards  of  equaHzation,  established  for  the 
purpose  of  securing  a  more  equitable  distribution  of  the  state  tax. 
The  powers  and  jurisdiction  of  the  state  boards  were  wholly  inade- 
quate ;  the  seriousness  of  their  problems  was  quite  generally  unap- 
preciated; and  under  their  regime  competitive  undervaluation 
continued  to  flourish. 

The  second  step  toward  administrative  reform,  state  control  of 
corporate  assessments,  was  occasioned  by  the  growth  of  the 
modern  corporation  especially  of  the  public  service  type.  The 
farcical  character  of  local  assessment  of  such  properties  was  early 
recognized,  even  by  those  who  could  see  no  further  defects  in  the 
tax  system.  The  rising  tide  of  opposition  which  set  in  after  1870 
against  the  powerful  railroad  corporations  has  been  partly  respon- 
sible for  the  administrative  progress  in  dealing  with  this  problem. 
The  general  poUcy  of  public  control  found  expression  in  more 
effective  systems  of  taxation  as  well  as  in  regulation  of  rates  and 
conditions  of  service.  There  was  great  variety  in  both  the 
methods  and  results  of  this  taxation,  but  the  significant  feature  in 
practically  every  state  was  the  removal  of  all  or  a  part  of  the 
pubhc  service  corporations  from  the  jurisdiction  of  the  local  tax 
officials.^ 

The  progressive  decHne  of  the  general  property  tax  led  to  the 
final  reform,  the  establishment  of  the  state  tax  commission.  This 
body  has  usually  taken  over  the  functions  of  equaHzation  and 
corporation  assessment.  Its  distinctive  function  has  been,  how- 
ever, the  more  or  less  effective  supervision  of  local  officials  and  the 
general  administration  of  the  entire  tax  system. ^  Such  is  the 
course  of  the  running  fight  of  the  states  with  the  general  property 
tax  in  the  hope  of  subduing  it  at  last  into  an  efficient  and  manage- 

1  Cf.  below,  pp.  33-39.  Cf.  also  McCrea,  "  The  Taxation  of  Transportation 
Companies  in  the  United  States,"  in  Report  of  the  United  States  Industrial  Com- 
mission, 1 90 1, ix,  pp.  1 005- 1 09 1. 

*  This  outline  is  not  meant  to  be  more  than  roughly  correct,  chronologically. 
Few  states  have  exemplified  all  of  these  stages  in  the  above  order,  and  the  states 
in  which  centralization  began  later  often  adopted  all  of  the  administrative  devices 
which  had  previously  been  developed.  In  some  cases,  also,  the  tax  commission 
has  not  acquired  the  duties  of  equalization  and  corporate  assessment,  though  such 
concentration  is  becoming  more  general. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION  7 

able  servant  of  the  public  needs.  Whether  this  effort  has  suc- 
ceeded will  be  one  of  the  questions  which  can  be  answered  only,  if 
at  all,  at  the  close  of  this  examination  of  the  results  achieved  thus 
far  by  the  centralizing  movement. .  Each  of  the  stages  thus 
outlined  will  now  be  considered  in  more  detail. 

Decentralized  Character  of  the  Early  General 
Property  Tax 

It  was  only  natural  that  the  administration  of  the  general  prop- 
erty tax  should  originally  be  highly  decentralized.  This  tax  de- 
veloped in  the  colonial  and  early  national  periods  under  economic 
and  political  conditions  which  made  any  other  form  of  adminis- 
trative organization  impracticable.  In  the  first  place  it  was 
unnecessary,  because  the  limited  range  of  pubHc  expenditures 
imposed  no  appreciable  burden  upon  the  resources  of  the  people, 
who  "  paid  their  taxes  out  of  their  abundance."  ^  The  defects 
which  were  later  to  be  pronounced  inherent  and  inevitable  had 
not  yet  become  generally  obnoxious,  and  indeed  they  only 
became  so  with  greater  revenue  needs  and  the  growth  of  forms 
of  wealth  which  could  easily  evade  the  clumsy  and  inefficient 
administrative  machinery  of  the  times.  Any  attempt  at  an 
elaborate  fiscal  organization  would  have  been  a  useless  waste  of 
energy  in  the  face  of  the  more  serious  political  and  economic  prob- 
lems with  which  the  people  were  then  confronted.  In  the  second 
place  a  more  highly  centralized  system  would  have  been  impracti- 
cable at  that  time  because  of  the  strong  sentiment  in  favor  of  local 
autonomy.  The  revolutionary  slogan,  "  No  Taxation  without 
Representation,"  still  suggested  too  strongly  the  idea  of  intoler- 
able interference  with  local  institutions  to  permit  any  marked 
degree  of  central  control  over  the  functions  of  assessment  and 
valuation,  then  regarded  as  so  definitely  localized  in  character. 
The  persistence  of  this  view  in  certain  sections,  especially  in  the 
New  England  states,  has  done  much  to  block  needed  reforms. ^ 

*  Cf.  Bullock,  The  Finances  of  Massachusetts,  for  comparative  figures  showing 
early  expenditures  in  that  state. 

^  Cf.  W.  B.  Fellows,  "  Problems  encountered  in  establishing  central  Adminis- 
tration in  a  State  under  a  Town  Form  of  Government,"  Proceedings  of  the  National 
Tax  Conference,  191 2,  pp.  469-477.    Also,  Report  of  the  New  Hampshire  Tax  Com- 


8  THE  STATE  TAX  COMMISSION 

During  the  first  half  of  the  nineteenth  century  the  emphasis  in 
American  politics,  in  Professor  Goodnow's  phrase,  was  "  upon 
political  Hberty  rather  than  upon  administrative  efficiency,"  and 
decentralizing  tendencies  were  evident  in  almost  every  branch  of 
pubKc  administration.^  It  was  but  natural,  therefore,  that  the 
general  propert}^  tax,  developing  in  such  an  environment  of 
thought  and  procedure,  should  conform  to  the  practice  of  the 
day. 

Conformably  with  this  practice,  the  administrative  unit  for  tax 
purposes  was  either  the  township,  as  in  the  sections  under  New 
England  influence,  or  the  county,  as  in  the  areas  settled  from 
Virginia  and  the  south.^  Whatever  the  form  of  local  governmental 
organization,  the  assessor  was  by  far  the  most  important  official 
in  the  tax  system. 

Different  methods  of  selecting  the  assessor  were  employed  at 
different  times  and  places.  The  first  of  these,  used  both  in  the 
colonial  period  and  afterward,  was  to  require  some  local  official  to 
act  as  the  assessor  ex  officio.  Thus,  in  Massachusetts  colony,  after 
1 646,  it  was  the  practice  to  require  the  selectmen  of  towns  to  act  as 
assessors,  assisted  by  a  local  commissioner  elected  by  the  freemen 
of  each  town  for  this  purpose.  The  local  commissioner  disap- 
peared after  1695,  but  the  selectmen  continued  to  act  as  asses- 
sors in  many  places  throughout  the  eighteenth  century.^  In  the 
colony  of  New  York,  previous  to  1683,  the  constable  and  the  eight 

mission  of  igo8,  pp.  160-164.  Also,  the  Reports  of  the  Joint  Special  Committee  on 
the  Taxation  Laws,  Rhode  Island,  1910-12.  In  all  four  reports  were  issued 
by  this  committee  before  a  tax  commission  was  established.  Also,  D.  R.  Freeman, 
"  Defeat  of  the  Virginia  Tax  Reform  Bill,"  Proceedings  of  the  National  Tax  Con- 
ference, 191 2,  pp.  419-423. 

1  While  it  is  true  that  in  the  period  spoken  of,  viz.,  the  close  of  the  eighteenth 
century  and  the  first  half  of  the  nineteenth  century,  the  prevailing  mode  of  tax 
administration  was  highly  decentralized  in  character,  there  had  been  periods  of 
greater  centralization  at  different  times  in  the  colonial  history  of  the  older  states. 
The  rise  and  decline  of  a  phase  of  administrative  centralization  in  New  Jersey 
between  1668  and  1730  is  described  by  J.  M.  Mathews,  in  the  Jour.  Pol.  Econ.,  xx, 
pp.  719  ff.  See  also,  Fairlie,  The  Centralization  of  Administration  in  New  York, 
especially  p.  159. 

2  Cf.  Howard,  Local  Constitutiofial  History  of  the  United  States,  chs.  3,  4,  9,  10. 
'  I  am  indebted  to  Professor  E.  E.  Day  of  Harvard  University  for  these  facts. 

I  have  also  had  access  to  his  unpublished  work  on  the  History  of  the  General  Property 
Tax  in  Massachusetts  during  the  Seventeenth  Century. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION  9 

overseers  of  the  parish  acted  as  the  board  of  assessors,  but  in  this 
year  the  office  of  assessor  was  made  elective  in  each  town,  city, 
and  county  of  the  province.^  In  Iowa  ^  the  sheriff,  and  in  Illinois  ^ 
the  county  treasurer  performed  the  duties  of  assessor.  The  coun- 
ties of  Missouri  which  retained  the  township  form  of  organization 
still  use  the  town  clerk  as  the  assessor.''  The  selectmen  of  Maine 
and  Massachusetts  may  act  as  assessors  in  case  of  the  failure  of 
the  towns  to  elect  such  officers,^  and  the  sheriffs  of  counties  in 
Nevada  may  serve  as  county  assessors  ex  officio.^ 

A  second  method  of  selection  was  appointment  by  the  county  or 
township  board,  or  by  the  mayor  and  council  of  cities.  This 
method  was  frequently  in  use  under  the  early  territorial  and  state 
governments.  Thus  in  Michigan  ^  and  Indiana,^  the  assessor  was 
appointed  by  the  county  board;  in  Kansas  by  the  county  court;  ^ 
and  in  Mississippi  by  the  court  of  common  pleas. ^^  In  Ohio  the 
special  appraisers  for  the  periodic  revaluations  of  real  estate  were 
originally  appointed  by  the  boards  of  county  commissioners,'^  and 
in  Iowa  where  the  county  assessor  was  usually  elected,  the  county 
judge  was  empowered  to  appoint  deputies  for  the  counties  above 
10,000  population. '2  Township  or  county  assessors  are  still  ap- 
pointed by  some  local  authority  in  about  eight  states,  and  for 
cities  of  certain  size  in  about  nine  other  states.'^ 

A  third,  and  by  far  the  most  common  method  of  selection  at  the 
present  time,  is  that  of  local  election.'^    In  the  large  majority  of 

^  Schwab,  History  of  the  General  Properly  Tax  in  Neiv  York,  pp.  36,  52. 

*  Brindley,  Financial  History  of  Iowa,  i,  p.  30.  The  assessor  had  been  elected 
by  the  county  in  1839;  by  the  township  in  1843;  by  the  county  in  1845;  in  1847  the 
sheriff  was  made  assessor  ex  officio.    Brindley,  ibid.,  pp.  5,  12,  16,  30. 

^  Report  of  the  Special  Tax  Commission  of  Illinois,  1910,  p.  2. 

*  Judson,  Taxation  in  Missouri,  p.  202. 

^  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1913,  i,  pp.  40,  5cx>. 

^  Ibid.,  1902,  p.  745.  '  Revised  Stalules  of  Michigan,  1820,  p.  271. 

*  Laws  of  Indiana,  1816,  ch.  19. 

'  Benton,  Taxation  in  Kansas,  p.  125. 

*"  Brough,  Taxation  in  Mississippi,  p.  184. 

"  Laws  of  Ohio,  1825,  p.  85.  ^'^  Brindley,  op.  cit.,  i,  p.  42. 

^*  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1902,  pp.  648-826.  Ibid., 
1913,  i,  PP-  449-711- 

^*  The  assessor  was  elected  locally  in  1913  in  44  states.  Bureau  of  the  Census, 
Wealth,  Debt  and  Taxation,  1913,  i,  pt.  4.    Cf.  New  York  Stale  Conference  on  Taxa- 


lO  THE  STATE  TAX  COMMISSION 

states  the  right  of  the  township  or  county  to  choose  its  assessors 
from  among  its  citizens  has  become  a  firmly  established  principle. 

In  the  formative  period  of  the  general  property  tax  relatively 
little  attention  was  paid  to  the  scope  of  administrative  authority. 
The  powers  given  to  the  early  assessor  were  slight  and  the  tax- 
payer enjoyed  large  freedom  of  self-assessment.  It  was  not  an 
uncommon  practice  for  the  assessor  to  post  notices  of  a  date  and 
place  of  meeting,  at  which  time  and  place  all  the  people  were  to 
assemble  to  give  in  their  lists  of  taxable  property.  Visits  were 
made  only  to  those  who  refused  or  were  unable  to  appear  at  the 
appointed  place.  In  Kansas  the  assessor  was  paid  one  dollar  each 
for  making  these  visits.  Having  collected  the  lists  it  was  usual  for 
the  assessor  to  announce  a  period  when  these  would  be  open  to 
inspection,  after  which  claims  for  abatement  might  be  presented.^ 
Originally  some  states  failed  to  provide  any  other  arrangement  for 
review  and  equalization,  and  to  prevent  unequal  assessments 
legislatures  often  enacted  schedules  of  the  valuations  at  which 
various  classes  of  property  were  to  be  rated. ^  Such  crude  efforts 
at  maintaining  equality  were  probably  unsatisfactory  enough 
while  the  forms  of  wealth  were  fairly  homogeneous  in  nature  and 
earning  power;  they  failed  utterly  after  the  imposition  of  the 
thoroughgoing  general  property  tax  upon  a  mass  of  wealth  which 
had  begun  to  differ  considerably  in  income-yielding  capacity.^ 

The  defects  of  such  extremely  decentralized  administration  led 
to  the  early  development  of  certain  improvements  which  repre- 
sented rather  the  efforts  of  the  local  units  to  overcome  these 
defects  single-handed.  One  of  these  attempted  improvements 
was  the  grant  of  greater  inquisitorial  power  to  the  assessor  for  the 
discovery  of  hidden  wealth   and   the  right  of  assessment  by 

tion,  191 1,  pp.  155-156,  for  a  summary  of  the  curiously  varied  methods  of  selection 
and  composition  of  the  local  boards  of  assessors  in  New  York  state. 

^  E.  g.,  Laws  of  Indiana,  1816,  ch.  19;  Revised  Statutes  of  Kansas,  1855,  p.  663. 
Day,  op.  cil.,  p.  61. 

2  Wolcott,  "  Report  on  Direct  Taxes,"  in  American  State  Papers  on  Finance,  i, 
pp.  418,  419,  gives  such  a  schedule  for  Vermont  and  New  Hampshire,  as  of  1794. 
Cf.  also  Schwab,  op.  cii.,  p.  56.  The  New  Jersey  Special  Tax  Commission  of  1880 
reprints  copies  of  such  lists  for  that  state,  enacted  in  1 759  and  1782.  Report,  pp.  15, 
19. 

'  This  is  the  general  verdict  of  the  students  of  state  taxation. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       II 

"  doomage  "  in  case  of  refusal  on  the  part  of  the  taxpayer  to  aid 
him  in  the  search.  In  1651  the  General  Court  of  Massachusetts 
colony  ordered  that  merchants'  and  traders'  stocks,  which  had 
been  evading  taxation  under  the  methods  of  assessment  in  vogue, 
be  "  assessed  by  the  rule  of  our  common  estimation  according  to 
the  will  and  dome  of  the  assessors."  *  In  1694-95  there  was 
provided  a  fine  of  five  shillings  and  a  fourfold  assessment  as  a 
penalty  for  any  omission  or  evasion. ^  In  1735  it  was  ordered 
that  no  person  could  apply  for  an  abatement  unless  he  had 
made  a  return  of  his  property  to  the  assessor.'  After  numerous 
changes  it  was  provided  in  1853  that  no  application  for  abate- 
ment would  be  received  "  until  the  taxpayer  shall  have  filed  a 
list."  *  This  device  gave  the  taxpayer  a  chance  to  play  against 
the  state  by  refusing  to  hst  his  property,  and  having  lost  through 
high  assessment  under  doomage,  to  file  his  list  and  claim  the 
abatement.  Such  obviously  faulty  procedure  lasted  only  until 
1857  when  the  list  was  required  to  be  filed  within  the  time  pre- 
scribed by  the  assessors.^  Finally,  in  1865,  an  abatement  was 
allowed  on  the  amount  in  excess  of  a  penalty  of  50  per  cent  which 
was  to  be  added  to  the  original  assessment.^  The  50  per  cent  limit 
was  really  a  check  against  approximating  full  value  under  doom- 
age in  the  case  of  very  large  estates  which  had  been  considerably 
undervalued.  In  1891  efforts  to  increase  the  doomage  power  of 
the  Massachusetts  assessor  were  defeated.^ 

The  introduction  of  similar  measures  in  Vermont  dates  to  the 
early  history  of  the  state.  The  first  tax  act  required  the  listers  (or 
assessors)  to  warn  all  the  people  to  give  in  writing  "  a  true  account 
of  all  their  listable  polls  and  all  their  rateable  estate,  particularly 
mentioning  all  such  things  as  are  in  this  act  expressly  men- 
tioned." ^  These  lists  were  to  be  signed  by  the  taxpayers.  The 
listers  could  place  valuations  on  the  articles  which  were  not  spe- 
cifically valued  by  the  statute  and  were  empowered  to  fourfold 

'  Day,  op.  cit.,  p.  42. 

*  Laws  of  Massachusetts,  1694-95,  ch.  2. 

'  Ibid.,  1735,  ch.  13.  *  Ibid.,  1853,  ch.  319. 

*  Ibid.,  1857,  ch.  306.  6  Ibid.,  1865,  ch.  121. 

^  Cf.  Henry  Winn,  Speech  on  the  Doomage  Bill,  Boston,  1891. 

*  Wood,  History  of  Taxation  in  Vermont,  pp.  32,  33. 


12  THE  STATE  TAX  COMMISSION 

omissions  as  a  penalty.  By  1825  this  simple  procedure  had  proved 
so  unsatisfactory  that  the  listers  were  given  practically  unlimited 
powers  over  the  assessment  of  intangibles  so  long  as  they  acted 
with  "  common  care,  skill  and  prudence."  A  reaction  against  this 
extreme  power  occurred  in  1841  and  the  taxpayer  was  not  re- 
quired to  hand  in  a  list  of  his  personal  property  except  on  the 
demand  of  the  Hster.  Five  years  later  it  was  provided  that  the 
person  claiming  overassessment  should  submit  to  an  examination 
under  oath  by  the  listers,  who  were  then  empowered  to  take  other 
evidence  and  assess  the  aggrieved  person  "  at  such  sum  as  from 
the  evidence  they  shall  deem  just." 

Ohio  introduced  a  certain  degree  of  inquisitorial  power  in  the 
law  which  ushered  in  the  general  property  tax.  The  assessor  was 
to  take  the  personal  property  returns  of  the  taxpayer  on  oath. 
Should  the  person  refuse  to  give  in  a  statement,  or  swear  to  his 
return,  however,  the  assessor  was  empowered  to  examine  any 
other  persons  under  oath  in  order  to  fix  a  proper  assessment  upon 
the  delinquent.^  Additional  powers  of  inquisition  were  also  given 
to  the  county  auditor,  who  was  authorized  to  add  a  50  per  cent 
penalty  for  refusal  to  swear  to  the  list  returned,  and  also  to  insti- 
tute further  examination  as  to  the  amount  and  the  value  of  the 
personal  property  of  such  person.  This  inquisitorial  feature  was 
carried  to  its  most  notorious  and  obnoxious  extreme  in  the  so- 
called  "  tax  ferret  law,"  applied  to  certain  counties  in  1885  and 
extended  to  the  whole  state  in  1888. ^  Under  this  law  the  county 
commissioners  were  allowed  to  contract  with  individuals  to 
search  for  hidden  property  which  the  assessors  had  failed  to 
discover. 

The  attempt  to  secure  more  complete  returns  of  taxable  prop- 
erty by  strengthening  the  inquisitorial  powers  of  local  officials  or 
by  authorizing  a  delegation  of  this  power  to  private  detective 
agencies  has  nowhere  attained  marked  success.  Ohio's  experience 
in  the  first  decade  convinced  Professor  Carver  that  the  plan  was 
"  not  capable  of  reforming  the  general  property  tax."  ^   Success 

1  44  Ohio  Laws,  85.  2  2,2  Ohio  Laxvs,  152;   85  Ohio  Laivs,  170. 

^  T.  N.  Carver,  "  The  Tax  Inquisitor  System  in  Ohio,"  Ptib.  Am.  Econ.  Assn., 
1898,  p.  211.    Cf.  also  E.  A.  Angell,  "The  Tax  Inquisitor  System  in  Ohio,"  Yah 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       1 3 

depended  upon  the  cooperation  of  the  county  auditors  with  whom 
rested  the  final  authority  to  hst  the  discovered  property.  These 
officials  frequently  lost  interest  in  the  activities  of  the  "  tax  fer- 
rets "  and  in  some  cases  they  even  manifested  open  opposition  to 
listing  the  property  unearthed  by  the  inquisitors.  The  law  was 
held  unconstitutional  in  1906.^  In  Iowa  the  assessment  of  per- 
sonal property  increased  in  the  counties  in  which  "  tax  ferrets  " 
were  employed,  but  the  historian  of  the  Iowa  system  decided  that 
definite  conclusions  could  not  be  drawn  from  the  results,  either  as 
to  the  increased  listing  of  personal  property  through  the  inquisi- 
tors or  as  to  the  general  increase  in  such  assessments.^ 

A  second  feature  of  the  struggle  which  the  local  units  were 
making  to  sustain  the  weakening  general  property  tax  was  the 
development  of  the  oath  which  was  to  be  taken  by  both  tax- 
payer and  official,  and  the  increase  of  the  penalties  for  false 
oath  or  returns.  Originally  this  means  of  assuring  correct 
returns  from  the  taxpayer  and  proper  performance  of  duty 
by  the  assessor  was  very  simple,  and  it  was  not  required  in  all 
cases. ^  In  the  colony  of  New  York,  in  1691,  the  assessors  were 
required  to  swear  that  they  would  "  well  and  truly,  equally  and 
according  to  their  best  understanding,  assess  and  rate  the  Inhabi- 
tants, Residents,  and  Freeholds  of  the  respective  places  for  which 
they  should  be  chosen  assessors."  After  repeated  efforts  to  stimu- 
late the  assessors  by  varying  the  form  of  the  oath,  together  with 
numerous  strict  injunctions  from  the  legislature  to  ''  spare  no 
person  for  favor  or  affection,  or  grieve  any  person  for  Hatred  or 
Ill-will,"  the  following  oath  was  formulated  in  1764:  * 

Review,  v,  pp.  350-373.  Also,  J.  R.  Garfield,  "Listing  and  Valuation,"  Nalional 
Tax  Conference,  Buffalo,  1901,  pp.  11-16. 

^  State  V.  Lewis,  74  Ohio,  403. 

2  Brindley,  op.  cit.,  i,  341;  also  I,  chs.  14,  15.  In  1840  the  Iowa  assessor  was 
authorized  to  require  the  oath  at  his  discretion,  and  in  case  of  refusal,  he  was  to 
ascertain  the  proper  value  from  other  sources.  A  charge  of  $5.00  was  to  be  made 
for  this  trouble.    Laws  of  Iowa,  1839-40,  pp.  65,  66. 

'  The  oath  was  not  required  in  Michigan.  Cf.  Laws  of  1820,  p.  271.  In  Missouri 
the  assessor  got  sworn  returns  from  less  than  half  the  taxpayers.  Judson,  op.  cit., 
p.  266. 

*  Schwab,  op.  cit.,  pp.  60,  61. 


14  THE  STATE  TAX  COMMISSION 

I,  A.  B.,  do  solemnly  swear  upon  the  Holy  Evangels  of  Almighty  God 
that  I  will  well  and  truly,  equally  and  impartially,  and  in  due  proportion 
according  to  the  best  of  my  understanding,  assess  aU  the  whole  Estates, 
real  and  personal,  of  all  the  Freeholds,  etc.  within  the  city  of  Albany.  So 
help  me  God. 

Evidence  of  the  need  for  stricter  assessments  in  Massachusetts 
is  found  in  similar  variations  in  the  form  of  the  oath  in  that  state. ^ 
No  oath  was  required  by  the  first  tax  act  of  Vermont,  passed  in 
1778,  but  a  penalty  of  fourfold  assessment  was  imposed  for  failure 
to  return,  or  for  incorrect  returns.  In  1809  the  person  appealing 
from  the  action  of  the  assessors  in  their  assessment  of  omitted 
property  was  required  to  take  the  oath  as  to  the  amount  of  his 
property.  The  tax  act  of  1880  required  the  oath,  with  signature, 
and  penalized  falsification  by  double  assessment  and  the  penalties 
for  perjury.  Even  such  drastic  efforts  were  not  successful  in  pro- 
moting the  full  assessment  of  intangible  property.^  Concerning 
similar  legislation  in  New  York  state  David  A.  Wells  remarked :  ^ 

.  .  .  oaths  as  a  matter  of  restraint  or  as  a  guarantee  of  truth  in  respect 
to  ofi&cial  statements  have,  in  great  measure,  ceased  to  be  effectual;  or  in 
other  words,  perjury,  direct  and  constructive,  has  become  so  common  as  to 
almost  cease  to  excite  notice. 

A  third  phase  of  the  attempt  to  enforce  the  general  property  tax 
by  local  administration  was  the  establishment  of  local  boards  of 
review  and  equalization,  or  the  imposition  of  these  functions  upon 
some  other  body,  such  as  the  county  court,  the  county  commis- 
sioners, the  town  board  of  supervisors,  or  other  local  organization. 
Local  boards  of  review  often  appeared  quite  early  in  the  colonial 
period.  For  instance,  the  experience  of  Massachusetts  colony 
under  rather  complete  freedom  of  local  assessment  resulted, 
according  to  the  language  of  the  General  Court  in  1646,  in  the 
"  want  of  one  general  way  and  rule  of  rating  throughout  ye  coun- 
try .  .  ."^  The  tax  law  of  1646  provided  for  the  election  of  a 
local  commissioner  in  each  town  who  was  to  assist  the  selectmen 
in  making  the  assessment.    The  commissioners  in  each  county 

1  Douglas,  Financial  History  of  Massachusetts,  pp.  66,  67. 

^  Wood,  op.  cit.,  pp.  8,  40,  61,  62. 

'  Wells,  Theory  and  Practice  of  Taxation,  p.  432. 

*  Day,  op.  cit.,  p.  40. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION        1 5 

were  then  to  assemble  at  the  shire  towns  and  were  "  required  by 
law  to  examine  the  local  lists,  correct  them  if  necessary,  and  re- 
duce them  as  nearly  as  possible  to  a  correct  basis  of  valuation."  ^ 
In  1688  the  East  Jersey  legislature  provided  for  county  commis- 
sioners, with  power  to  amend  the  account  given  by  any  individual 
in  the  county  concerning  his  taxable  property.  This  supervision 
was  abandoned  in  1716.2  Similar  difficulties  were  met  in  New 
York,  for  as  early  as  1692  the  colonial  assembly  petitioned  to  the 
governor  as  follows :  ^ 

.  .  .  that  there  may  be  a  certain  method  for  the  equal  and  proportionable 
assessing  of  subsidies  we  doe  pray  that  his  Excell.  would  appoint  commis- 
sioners in  each  respective  county  for  the  making  of  an  Estimate  of  their 
Estates,  that  for  the  future,  there  may  not  be  such  uncertaintyes. 

More  effective  county  equalization  in  New  York  began  in  181 7 
when  the  county  boards  were  authorized  to  change  the  total 
assessment  of  any  town  in  order  to  equalize  the  tax  burden.* 

By  an  act  of  1795  Pennsylvania  provided  for  a  triennial  assess- 
ment of  all  taxable  property,  the  valuations  of  which  were  to  be 
equahzed  by  the  county  commissioner,  though  without  changing 
relative  valuations  within  the  townships.^  Indiana  provided  in 
181 6  that  the  county  commissioners,  who  at  that  time  served  as 
the  assessors,  should  "  examine  and  correct  "  the  lists  each  year 
at  the  end  of  the  assessment  season.^  Vermont  created  county 
boards  of  equalization  in  1820.  They  were  composed  of  one  lister 
{i.  e.,  assessor)  elected  by  the  board  of  listers  of  each  town,  and 
met  only  for  the  equaHzation  of  the  triennial  assessments  of  real 
estate  then  in  vogue. ^  Ohio  established  in  1825  special  county 
boards  of  review,  consisting  of  the  special  appraisers  of  real 
estate  and  the  county  auditor.*  Annual  county  equalization  was 
begun  in  Ohio  in  1852  when  the  county  commissioners  and  the 
county  auditor  were  constituted  a  board  of  equaUzation  but 
without  power  to  reduce  the  aggregate  valuation  of  the  county.' 

1  Day,  op.  ciL,  p.  62. 

*  Mathews,  "  Tax  Administration  in  New  Jersey,"  Jour.  Pol.  Econ.,  xx,  p.  727. 
'  Schwab,  op.  cit.,  p.  55.  '  Wood,  op.  ciL,  p.  43. 

*  Fairlie,  op.  ciL,  p.  160.  *  23  Ohio  Laws,  58. 
^  Wolcott,  op.  cit.,  p.  428.  '  49  Ohio  Laws,  58. 

*  Laws  of  Indiana,  18 16,  ch.  19. 


1 6  THE  STATE  TAX  COMMISSION 

By  a  Michigan  statute  of  1827  the  county  supervisors  were  to 
receive  the  rolls  from  the  assessors  and  to  examine  them  "  with  a 
view  to  ascertaining  whether  the  valuations  in  one  town  bore  a 
just  relation  or  proportion  to  the  valuations  in  all  the  townships  of 
the  county."  The  supervisors  were  further  authorized,  in  their 
discretion,  "to  add  or  deduct  from  the  valuations  in  any  township 
such  a  per  cent  as  might,  in  their  opinion,  be  necessary  to  produce 
a  just  relation  between  all  the  valuations  of  real  estate  in  the 
county  .  .  ."  ^  The  increasing  inequaHty  of  assessments  in  New 
Jersey  led  to  the  authorization  of  county  equalization  for  individ- 
ual counties  at  different  times. ^  In  1846  the  township  committee 
of  any  township  in  Mercer  county  was  authorized  to  appeal  to  the 
board  of  chosen  freeholders  of  the  county,  which  was  empowered 
to  alter  the  township's  apportionment  within  certain  limits.  In 
1873  a  special  county  board  was  created  in  Hudson  county, 
chiefly  for  the  purpose  of  equalizing  among  the  municipalities 
therein.  Finally,  ten  years  later,  the  county  boards  of  assessors  in 
the  remaining  counties  were  empowered  to  raise  the  duplicate  of 
any  township  assessor.^  Kansas  provided  in  i860  that  the  county 
commissioners  should  act  as  a  board  of  equalization  with  power  to 
equalize  both  real  and  personal  property,  though  the  aggregate 
valuation  of  the  county  might  not  be  reduced.* 

These  local  boards  of  review  were  unable  to  exercise  any  signifi- 
cant influence  upon  the  course  of  development  of  the  general 
property  tax,  because  of  the  usual  restriction  of  their  power  to  the 
function  of  equalization  only,  and  sometimes  even  to  the  equaliza- 
tion of  real  estate  alone  as  in  New  York  and  Indiana.  The  equal- 
ization process  ordinarily  involved  simply  a  redistribution  of 
the  local  figures  among  the  tax  districts  without  alteration  of  the 
aggregate  assessment.  In  Illinois  the  county  boards  were  given 
power  in  1872  to  review  original  assessments;  further  extension  of 
power  was  granted  in  1898  when  the  town  boards  were  abolished 
and  the  county  boards  were  authorized  to  assess  omitted  prop- 
erty, to  hear  appeals  on  complaint,  to  equalize  by  raising  or  lower- 

1  Laws  oj  Michigan,  1827,  Act  approved  March  30,  1827. 

2  Cf.  below,  p.  100.  ^  Mathews,  op.  cit.,  pp.  729,  730. 
*  Laws  of  Kansas,  i860,  ch.  114. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION        IJ 

ing  all  property  or  any  class  of  it,  and  to  pass  upon  claims  for 
exemptions.^  The  methods  and  motives  of  the  early  Indiana 
boards  were  illustrated  by  the  following  preamble  to  an  emergency 
statute,  passed  in  1852 :  ^ 

Whereas  information  has  been  received  that  the  boards  of  equah'zation  in 
several  of  the  counties  of  the  state,  at  their  September  session  of  1851,  made 
a  large  reduction  of  their  respective  counties  without  authority  and  in  vio- 
lation of  law,  thereby  releasing  the  taxpayers  of  said  counties  from  their 
equal  and  just  portion  of  the  public  burden,  etc.  .  .  . 

The  statute  instructed  the  state  auditor  to  ascertain  and  restore 
the  amounts  which  had  been  thus  cut  off  from  the  county  rolls. 
This  disclosure  was  followed  shortly  by  the  establishment  of  dis- 
trict and  state  boards  of  equalization.^  Similar  evidence  of  the 
failure  of  the  county  boards  is  found  in  the  assertion  of  the  New 
Jersey  State  Board  of  Taxation  that  the  special  boards  created  in 
certain  counties  failed  to  preserve  equality  among  the  cities  of  the 
county  because  the  members  were  unwilling  to  raise  the  cities 
from  which  they  happened  to  come.*  In  general,  it  must  be  con- 
cluded that  local  boards  of  equalization  were  unable  to  cope  with 
the  powerful  tendencies  which  were  setting  in,  during  the  middle 
of  the  nineteenth  century,  toward  evasion  and  undervaluation, 
and  in  this  respectmost  of  the  states  have  had  similar  experiences.^ 
In  some  states  at  an  early  period  the  county  auditor  was  given 
scanty  powers  of  supervision  over  the  assessors'  returns.  It  has 
not  been  possible  to  make  an  exhaustive  examination  of  the 
early  statutes  on  this  point  but  those  of  a  few  states  have  been 
covered;  and  it  has  been  observed  that  the  early  provisions  on 
this  subject  have  borne  a  rather  close  resemblance  to  each  other, 
a  coincidence  which  suggests  the  possibility  of  their  common 
origin  in  the  legislation  of  some  older  state.  Such  connection  has 
not   been   definitely   established,    however.     Using   the   earlier 

*  Report  of  the  Special  Tax  Commission  of  Illinois,  1910,  p.  7, 
^  Laws  of  Indiana,  1852,  ch.  65. 

^  Ibid.,  pp.  273  ff.  The  above  resolution  was  approved  Feb.  12,  while  the 
boards  of  equalization  were  approved  on  May  28. 

*  New  Jersey  State  Board  of  Taxation,  Report,  1894,  p.  14. 

*  Cf .  also  Report  of  the  Counsel  appointed  to  assist  the  New  York  Special  Tax  Com- 
mission of  i8pj,  p.  18.    Also,  Brough,  Taxation  in  Mississippi,  pp.  200,  204. 


1 8  THE  STATE  TAX  COMMISSION 

statutes  of  Indiana,  Ohio,  Minnesota,  and  some  other  middle- 
western  states,  the  supervisory  duties  of  the  county  auditor  in 
connection  with  the  assessment  process  may  be  tentatively 
grouped  thus:  ^ 

1.  Clerical  duties.  —  Among  these  were  the  preparation  of  the  tax  dupli- 
cate and  the  land  maps,  the  correction  of  clerical  errors  in  the  roll,  and 
other  duties  of  a  similar  nature. 

2.  The  power  of  abatement.  —  In  Minnesota  the  auditor  was  the  only 
local  official  who  was  empowered  to  grant  abatements.  This  authority 
was  assumed  by  the  tax  commission  in  1907.*  Indiana  allowed  the 
auditor  to  grant  abatements  on  account  of  losses  by  fire  or  upon  oath 
that  the  taxes  for  the  current  year  had  been  paid  in  another  state. 

3.  Powers  of  supervision  over  assessments. — The  auditor  was  usually 
required  to  impose  the  penalty  for  refusal  of  the  taxpayer  to  swear  to 
his  returns.  In  aU  of  the  states  investigated,  he  was  given  power  to 
deal  with  omitted  or  falsely  returned  property.  In  the  case  of  omis- 
sions, Indiana  permitted  the  auditor  to  assess  it  or  to  require  the  as- 
sessor to  do  so,  while  Minnesota  required  the  assessor  to  perform  the 
assessment,  though  the  auditor  could  compel  him  to  make  it.  In 
dealing  with  false  returns  the  auditor  was  generally  given  the  powers 
of  the  assessor  while  Minnesota  gave  in  addition  the  authority  to 
summon  witnesses  and  to  take  testimony  under  oath  in  order  to  reach 
a  correct  valuation. 

It  will  be  seen  from  even  this  brief  outline  of  his  duties  that  the 
auditor  was  hardly  intended  as  a  supervisory  officer  over  the  tax 
system,  but  was  given  certain  duties  in  the  event  that  property 
was  likely  to  escape  taxation  through  the  oversight  or  negligence 
of  the  assessor  or  through  the  deliberate  attempt  of  the  taxpayer 
to  avoid  making  the  necessary  disclosures  regarding  his  taxable 
possessions.  His  relation  to  the  assessor  was  supplementary  and 
clerical  rather  than  supervisory  and  such  influence  as  he  was  able 
to  exercise  was  insufficient  to  prevent  the  appearance  of  the  con- 
ditions which  were  forcing  the  development  of  a  more  effective 
system  of  control. 

'  The  data  for  these  paragraphs  were  taken  from  the  early  statutes  of  the  states 
mentioned  and  some  others.  They  relate  of  course  only  to  the  auditor's  powers  in 
the  early  nineteenth  century. 

2  Minnesota  Tax  Commission,  Preliminary  Report,  1907,  p.  45. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       1 9 

State  Boards  of  Equalization 

Evidence  of  the  changed  attitude  of  mind  toward  centralized 
administration,  a  change  which  brought  about  the  state  board  of 
equalization,  is  at  this  time  difficult  to  secure.  The  history  of  the 
administrative  organization  has  been  written  for  only  a  few  states, 
and  in  the  brief  discussion  which  follows  there  is  no  pretense  of 
doing  more  than  to  sketch  in  roughly  the  setting  for  the  later 
administrative  changes.  From  readily  available  sources  some 
evidence  has  been  collected  concerning  the  conditions  in  some 
states  which  may  illustrate  fairly  well  the  general  situation. 

In  Massachusetts  a  legislative  schedule  of  values  for  classes  of 
live  stock  had  been  found  necessary  by  1646,  the  year  in  which 
local  equalization  was  begun.  Lands  were  similarly  classified  and 
assigned  fixed  values  per  class  in  1657.  A  tax  list  of  1687  shows 
that  the  proportion  of  the  tax  burden  falling  on  real  and  personal 
property  varied  with  economic  conditions.  In  the  commercial 
towns,  possessing  less  live  stock  and  more  intangible  property  the 
proportion  of  personal  to  total  assessment  was  relatively  small. 
The  tax  burden  increased  heavily  during  and  just  after  King 
Philip's  War  and  in  1694  provincial  equalization  was  begun  by 
a  legislative  committee.^  Though  the  tax  burden  declined  during 
the  eighteenth  century,  there  is  still  evidence  of  undervaluation 
and  evasion  at  the  end  of  it.  The  constitution  of  1780  had  re- 
quired a  revaluation  of  estates  at  least  as  often  as  once  in  ten 
years.2  As  a  matter  of  fact,  it  was  actually  made  more  frequently 
than  that,  but  a  committee  of  the  General  Court  continued  to 
make  the  equaUzation.  In  1792  this  committee  reported  that 
owing  to  the  "  errors  and  deficiencies  in  the  returns  of  many 
towns,  the  relative  proportions  of  such  towns  to  those  which  had 
made  legal  and  proper  returns  would  be  marked  with  striking 
features  of  injustice."  ^  The  committee  sought  to  correct  these 
inequalities  by  adding  property  not  returned  by  the  owners, 
using  for  this  purpose  former  returns  and  the  results  of  their 
observations  of  conditions  over  the  state. 

1  Day,  op.  cit.,  pp.  51,  56,  75.  ^  Bullock,  op.  cit.,  p.  12. 

»  The  complete  report  is  given  by  Bullock,  ibid.,  pp.  13,  14,  note. 


20  THE  STATE  TAX  COMMISSION 

The  need  for  state  equalization  in  this  period  was  not  confined 
to  the  northern  states,  though  these  had  tended  to  make  greater 
use  of  direct  property  taxes. ^  Virginia  furnishes  evidence  of  the 
inequality  between  assessment  districts  and  of  the  need  of  cen- 
tralized supervision  of  these  returns,  and  the  situation  in  1782 
was  thus  described  by  Oliver  Wolcott :  ^ 

As  was  to  have  been  foreseen,  the  valuations  made  by  the  commissioners 
of  counties,  though  they  might  be  and  doubtless  were  just  and  accurate  in 
respect  to  the  relative  valuation  of  different  tracts  of  land  within  the  same 
county,  were  found  to  be  exceedingly  unequal  when  compared  with  the 
valuations  of  other  counties.  This  inequahty,  the  unavoidable  consequence 
of  assessment  by  commissioners  whose  proceedings  were  independent  of 
each  other  and  uncontrolled  by  any  common  standard  of  opinion,  rendered 
a  revision  indispensable.  To  effect  a  general  equalization  of  the  assessment 
an  act  was  passed  in  October,  1782,  by  which  the  different  counties  of  the 
state  were  arranged  in  four  districts;  in  this  classification  of  counties,  ref- 
erence was  had  to  their  soil  and  situation,  with  the  view  of  obtaining  a 
general  and  equitable  standard  of  valuation  for  the  lands  of  the  several 
counties.  ...  To  give  effect  to  this  act,  two  commissioners  were  appointed 
who  were  directed  to  examine  the  county  returns,  and  after  ascertaining 
the  average  value  of  the  lands  in  each  county,  agreeably  to  the  assessment 
made  pursuant  to  the  act  of  November,  1781,  and  after  comparing  the  same 
with  the  standard  or  average  valuation  of  the  district,  to  apply  the  same  by 
adding  or  deducting  the  same,  pro  rata,  to  the  assessment  of  each  individual. 

This  appearance  of  a  crude  state  equalization  in  Virginia  was 
only  sporadic  and  did  not  result  in  a  permanent  assumption  of 
the  task  by  the  state. 

State  equaKzation  seems  to  have  been  undertaken  next  in 
Maine,  Vermont,  and  Connecticut  in  1820,  and  in  Ohio  in  1825. 
No  evidence  is  at  hand  relative  to  conditions  in  Maine  and  Con- 
necticut, but  they  were  probably  not  widely  different  from  those 
in  neighboring  states.  The  tendency  for  personal  property  to 
evade  assessment  in  Vermont  is  shown  by  the  series  of  laws  which 
were  enacted  to  improve  the  returns.  An  act  of  1797  had  simply 
required  moneys  and  credits  to  be  set  down  in  the  grand  list  at 
$6.00  in  the  $100.  In  1809  a  much  more  definite  and  exact  re- 
quirement to  list  moneys  and  credits  was  enacted,  and  the  listers 

^  Dewey,  Financial  History  of  the  United  States,  p.  10. 

2  Wolcott,  op.  cit.,  p.  431.  The  document  prepared  by  Secretary  Wolcott  pre- 
sents a  valuable  account  of  state  tax  systems  as  they  were  at  the  close  of  the  eight- 
eenth century. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       21 

were  given  doomage  powers  in  order  to  enforce  a  better  return. 
In  1811  the  list  of  items  of  taxable  property  was  enlarged,  and  in 
181 7  more  exact  regulations  were  laid  down  governing  the  exemp- 
tions to  be  allowed  for  military  purposes.  The  growth  of  manu- 
factures denotes  an  increase  of  intangible  wealth  and  led  to  a 
greater  interest  in  tax  matters.  In  1820  lands  were  made  assess- 
able on  their  value  instead  of  on  a  specific  classification  and  this 
change  was  made  the  occasion  for  a  state  equalization.^  A  similar 
change  in  the  method  of  taxing  lands  in  Ohio  in  1825  led  to  the 
state  equalization  in  that  state.  The  tax  burden  had  become  very 
unequal,  as  was  shown  by  the  report  of  a  legislative  committee 
in  1825.-  This  report  showed  that  lands  were  underclassified. 
In  1820  only  225,082  acres  had  been  returned  in  class  I,  though 
the  committee  estimated  the  correct  quantity  at  2,000,000  acres. 
Further,  the  state  tax  was  being  inequitably  apportioned.  For 
instance,  Hamilton  county  paid  $2080,  while  Athens  county, 
with  one- thirteenth  the  valuation,  paid  $2142.  And  finally,  there 
were  serious  inequalities  among  individuals.  In  Vermont  and 
Ohio  as  in  Massachusetts,  the  state  equalization  of  this  period  was 
made  only  on  the  occasions  of  land  reappraisals.  There  was  as  yet 
no  regular  annual  equahzation  of  assessments  such  as  was  intro- 
duced later  under  the  fully  developed  general  property  tax. 

The  first  instances  of  such  regular  equalization  appear  in  a 
group  of  middle  western  states  about  the  turn  of  the  half-century. 
Michigan  and  Iowa  established  state  boards  of  equalization  in 
185 1,  Wisconsin  and  Indiana  in  1852.^  As  in  the  eastern  states, 
the  evidence  goes  to  show  that  evasion  and  competitive  under- 
valuation were  important  causes  for  the  creation  of  these  boards. 
In  Indiana  such  a  board  had  been  established  in  1841  but  it  con- 
tinued in  existence  only  eleven  months.^  In  1850  the  subject  of 
equitable  taxation  was  discussed  by  both  the  auditor  and  the 
governor.  Each  of  these  officials  emphasized  the  volume  of  stocks, 

^  Wood,  History  of  Taxation  in  Vermont,  pp.  40-44. 

2  House  Journal,  1825,  pp.  153-156.  Cf.  Bogart,  Financial  History  of  Ohio, 
pp.  200,  201. 

^  Laws  of  Michigaji,  1851,  p.  143,  act  no.  106;  Lau's  of  Iowa,  Code  of  1851; 
Laws  of  Wisconsin,  1852,  ch.  498;  Laws  of  Indiana,  1852,  p.  273. 

*  Rawles,  Centralization  of  Administration  in  Indiana,  pp.  260,  261. 


22  THE  STATE  TAX  COMMISSION 

notes,  mortgages,  and  other  intangible  possessions  that  was  escap- 
ing taxation.  Marion  county,  with  3454  taxable  polls,  returned 
$11,349  of  corporation  stocks;  and  Marshall  county,  with  785 
taxable  polls,  returned  $11,885.^  The  governor  struck  a  popular 
note  in  contrasting  the  certainty  of  assessing  the  tangible  prop- 
erty belonging  to  the  man  of  moderate  means  —  "  the  farmer,  the 
mechanic  and  the  day  laborer  "  —  with  the  ease  of  evasion  of  the 
intangible  evidences  of  wealth  which  filled  the  coffers  of  the  rich.^ 
The  assessment  of  lands  in  contiguous  counties  was  declared  to 
be  very  unequal,  and  beyond  remedy  except  by  a  state  board  of 
equalization.^ 

In  Wisconsin  the  territorial  governor  declared  in  184 1  that  the 
tax  system  was  "  unjust,  illegal  and  highly  oppressive."  *  County 
equaHzation  was  introduced  in  1849,  but  complaints  continued  to 
be  heard  in  all  sections  and  the  state  board  of  equaHzation  was 
provided  three  years  later.  In  Iowa  a  defective  revenue  system 
had  been  inherited  from  the  territorial  regime.  Property  was 
underassessed,  some  counties  were  returning  no  moneys  and 
credits,  and  an  abnormal  percentage  of  taxes  was  delinquent.* 
In  both  Iowa  and  Wisconsin  there  was  strong  feehng  against  the 
non-resident  capitalist  and  landholder,  and  in  this  early  discus- 
sion of  tax  problems  there  is  evident  the  same  antagonism  to  the 
outside  capitalist  that  later  found  expression  in  the  Greenback 
and  Granger  movements.® 

In  New  York,  where  a  state  board  of  equaHzation  was  estab- 
lished in  1859,  the  effect  of  an  increased  tax  burden  may  be  clearly 
seen.  The  rate  of  the  state  tax  had  been  one  mill  on  the  dollar  in 
182 1.  This  tax  had  been  entirely  abandoned  from  1826  to  1842, 
and  the  total  amount  yielded  after  its  reintroduction  had  never 
exceeded  $500,000  in  any  year  previous  to  1850.^  Local  competi- 

^  Auditor  of  Indiana,  Report,  1850,  p.  57. 

*  Message  of  Governor  Wright,  Dec.  31,  1850.    Doc.  Jour.,  1850-51,  p.  100. 

^  Ibid.  •*  Phelan,  Financial  History  of  Wisconsin,  pp.  403,  318-320. 

^  Brindley,  op.  cit.,  i,  chs.  i,  2. 

®  Cf .  the  discussions  on  the  exemption  of  improvements,  the  taxation  of  credits 
and  land  increments,  and  the  possibility  of  a  land  monopoly,  in  Brindley,  op.  cit., 
i,  ch.  2,  and  Phelan,  op.  cit.,  pp.  300-306. 

"  State  Board  of  Assessors,  Report,  1879,  p.  18.    The  income  from  the  Erie 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       23 

tive  evasion  appears  to  have  been  common  even  before  the  res- 
toration of  the  state  tax.  Governor  Bouck  declared  in  1843  that 
the  assessors  of  each  town  had  fixed  as  low  a  valuation  as  their 
sense  of  duty  would  permit.  He  recommended  a  state  board  of 
equalization.^  In  185 1  Governor  Hunt  declared  that  much  per- 
sonal property  escaped  entirely,  while  lands  were  assessed  at  less 
than  their  value. ^  The  next  year  he  reported  that  the  assessment 
of  lands  had  been  improved  but  that  considerable  masses  of 
wealth  in  other  forms  continued  to  escape  taxation.^  The  rapid 
increase  of  both  state  and  local  taxes  in  New  York  after  1850  may 
be  seen  from  the  following  table: 

Assessed  Valuation,  State  Tax  and  Total  State  and  Local  Tax, 
IN  New  York,  1846-1870* 

Total  state  and 
Year  Assessed  valuation  State  tax  local  taxes 

1846 $616,800,000  $370,557  $4,647,000 

1850 724,700,000  364,003  6,312,000 

1855 1,402,800,000  2,5x5,000  11,676,000 

i860 1,419,200,000  5,440,000  18,956,000 

1865 1,550,800,000  7,230,000  45,961,000 

1870 1,967,000,000  14,285,000  50,328,000 

It  will  be  seen  that  in  1850  the  state  tax  represented  a  tax  rate  of 
about  50  cents  per  $1000.  By  1855  the  rate  was  about  $1,792  per 
$1000,  and  in  i860  it  was  $3,833.  The  total  assessment  of  prop- 
erty increased  130  per  cent  from  1846  to  i860,  but  the  state  tax 
increased  1341  per  cent  in  the  same  time.  The  table  shows  also 
the  phenomenal  increase  of  the  total  tax  burden  after  i860  and 
supphes  in  itself  a  sufficient  explanation  for  the  later  failure  of  the 
New  York  board  of  state  equalization. 

This  brief  review  of  the  evidence  readily  available  to  the  writer 
indicates  that  the  state  board  of  equalization  was  the  logical 
response  to  a  demand  for  relief  from  local  inequalities  in  taxation. 
The  causes  of  this  inequality  are  not  in  every  case  so  clear,  nor  is 
it  so  evident  why  regular  annual  equalization  should  have  ap- 

Canal  permitted  discontinuance  of  the  state  tax.  Cf.  Report  of  the  Committee  on 
Internal  Improvements  in  New  York.    Privately  reprinted,  Boston,  1839,  pp.  18,  19. 

'  Lincoln,  Messages  of  the  Governors  of  New  York,  iv,  pp.  24,  25. 

2  Ibid.,  iv,  p.  564.  '  Ibid.,  iv,  pp.  597,  598. 

*  Fairlie,  The  Centralization  of  Administration  in  New  York,  p.  160. 


24  THE  STATE  TAX  COMMISSION 

peared  first  in  the  newer  states  of  the  middle  west.  The  natural 
tendency  to  evasion  has  always  been  present  and  a  considerable 
impulse  to  its  exercise  was  given  by  the  extension  of  the  tax 
system  to  cover  all  forms  of  property,  and  by  the  increased  pres- 
sure of  higher  taxes.  In  some  of  the  eastern  states  the  rapid  rise 
in  tax  burden  did  not  come  until  the  Civil  War  or  the  years  imme- 
diately preceding.  In  the  states  farther  west  the  tax  burden  began 
to  be  considered  oppressive  somewhat  earher.^  Inefficient  man- 
agement of  finances,  heavy  interest  charges  on  account  of  internal 
improvements,  and  the  initial  expansion  of  state  administrative 
functions  —  these  factors  had  caused  a  real  increase  in  the  cost  of 
government.^  The  burden  was  felt  to  be  the  heavier  and  appar- 
ently furnished  a  sufficient  incentive  to  evasion  because  the  aggre- 
gate of  taxable  wealth  was  small,  the  economic  interests  were 
predominantly  agricultural,  and  the  transportation  facilities  were 
still  quite  undeveloped.  The  sense  of  injustice  was  deepened  by 
the  feeUng  that  those  best  able  to  pay  were  escaping  in  largest 
measure.^  Public  sentiment  crystallized  on  the  subject  of  state 
equalization  and  placed  it  in  the  category  of  state  administrative 
responsibilities.  Historically  this  step  was  very  important.  It 
marked  a  definite  change  of  administrative  poHcy  and  opened  the 
way  for  a  new  line  of  development,  though  as  a  practical  remedy 
these  boards  accomplished  very  little  for  the  relief  of  local  in- 
equalities. The  reasons  for  this  failure  will  be  made  clear  from  an 
examination  of  the  structure  and  powers  of  the  state  boards  of 
equalization,  and  of  the  conditions  with  which  they  were  expected 
to  deal* 

Methods  of  Selection. — Four  principal  methods  of  selection  have 
been  employed,  as  follows:  state  officials  acting  ex  officio;  elec- 

1  Cf.  figures  for  New  York  above,  p.  23,  and  those  for  Massachusetts  below, 
p.  28. 

^  Cf.  the  discussion  of  these  problems  for  Iowa  in  Brindley,  op.  cit.,  i,  chs.  1-5. 
Also  "  Minnesota  Tax  Commission,"  Report,  1914,  ch.  8,  "  The  Cost  of  Govern- 
ment in  Minnesota." 

^  Brindley  and  Phelan  emphasize  this  feeling  especially.  See  also,  Haig,  A 
History  of  the  General  Property  Tax  in  Illinois,  pp.  112,  113. 

*  Cf .  the  Separate  Report  of  Oscar  Leser,  Member  of  the  State  Tax  Commission  of 
Maryland,  1916,  for  a  discussion  of  these  and  other  points. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       25 

tion;  appointment  by  the  governor  with  confirmation  by  the 
senate  or  executive  council;  and  appointment  by  the  legislature 
of  a  committee  of  its  own  members.  The  first  method  has  been 
most  popular,  but  none  has  offered  any  material  advantage  in 
results.  The  elective  Illinois  board  has  failed  just  as  conspicuously 
as  did  the  ex  officio  Wisconsin  board.  However  constituted,  it  has 
been  impossible  to  prevent  the  entrance  of  the  same  spirit  of  log- 
rolling that  appeared  in  the  county  boards.  Representatives  of 
districts  have  fought  to  secure  a  low  valuation  for  their  districts, 
with  the  inevitable  result  of  inequality  of  taxation  over  the  state. 
Ex  oflacio  members  have  been  a  hindrance  both  to  boards  of 
equalization  and  to  the  later  tax  commissions.  Their  principal 
interests  He  elsewhere;  they  are  not  compelled  to  make  continuous 
and  careful  study  of  tax  problems  and  conditions ;  and  they  per- 
form the  ex  ofi&cio  duty  chiefly  with  a  view  to  its  ulterior  political 
effects.  This,  at  least,  has  been  the  experience  in  tax  administra- 
tion, and  the  sentiment  has  been  very  generally  expressed  that  tax 
boards  should  be  kept  free  from  officials  so  chosen. ^ 

Several  western  states  have  made  provision  in  their  constitu- 
tions for  state  boards  of  equalization. ^  The  folly  of  providing  per- 
manent forms  of  administrative  organization  by  thus  embedding 
them  in  the  organic  law  is  shown  by  the  experience  of  Colorado. 
Complete  centralization  of  tax  administration  in  that  state  was 
defeated  by  the  refusal  of  the  people  to  endorse  a  proposed 
amendment  providing  for  the  abolition  of  the  state  board  of 

1  A  recommendation  to  this  effect  occurs  very  widely  in  the  reports  of  special 
commissions.    Cf.  the  following  as  a  sample  of  the  criticism  that  is  offered: 

"  The  state  officers  who  constitute  the  present  state  board  of  equalization  are 
almost  wholly  occupied  with  the  other  duties  of  their  respective  oflSces.  It  is 
impossible,  in  the  nature  of  the  case,  that  they  should  give  very  much  of  their 
time  to  this  most  important  subject.  During  ten  or  eleven  months  of  the 
year  they  have  no  time  or  opportunity  to  devote  to  the  matter  of  assessment, 
and  the  whole  work  of  assessment  and  collection  of  taxes  goes  on  in  the  various 
counties  independently,  without  any  directing  or  supervising  power."  Report 
of  the  Kansas  Tax  Commission  of  igoi,  p.  13.  The  political  motives  are  espe- 
cially commented  upon  by  the  New  York  state  board  of  assessors  in  their  Report, 
1885,  p.  25.  Cf.  also  Colorado  Tax  Commission,  Report,  1912,  pp.  16,  17;  and 
the  Report  of  the  Committee  to  investigate  Assessment  and  Taxation,  Tennessee, 
1915,  p.  31. 

*  These  states  are  California,  Colorado,  Idaho,  Montana,  Utah,  and  Wyoming. 


26  THE  STATE  TAX  COMMISSION 

equalization  and  the  transfer  of  its  duties  to  the  new  tax 
commission.^ 

Scope  of  Powers.  —  According  to  the  original  design,  all  of  the 
earlier  state  boards  of  equalization  were  expected  merely  to 
equalize  the  local  returns  and  no  further  powers  were  conferred, 
though  in  some  cases  these  boards  were  later  given  the  duty  of 
assessing  certain  classes  of  corporate  property.  But  so  far  as  con- 
cerned the  function  of  equalization,  the  authority  of  both  state 
and  county  boards  was  strictly  limited  to  the  equalizing  process. 
In  a  few  cases,  notably  New  York  and  Ohio,  this  process  was  ex- 
tended to  real  estate  only.  The  more  general  practice  in  later 
years  was  to  equalize  both  real  and  personal  property  though  of 
course  the  power  of  changing  real  property  assessments,  except  in 
the  years  of  general  revaluation,  was  limited  to  allowances  for  the 
erection  or  destruction  of  improvements  above  a  certain  value, 
usually  $ioo.  The  variety  of  restrictions  may  be  illustrated  from 
a  group  of  middle  western  states.  The  Ohio  board  could  raise  or 
lower  the  total  local  valuation  by  12I  per  cent;  ^  the  Minnesota 
board  was  not  permitted  to  reduce  the  total,  but  might  increase  it, 
apparently  without  limit;  ^  the  Kansas  board  might  raise  or  lower 
any  county  but  was  not  allowed  to  alter  the  total  for  the  state;  * 
and  the  Michigan  board  was  free  to  alter  this  total  by  any  amount 
in  either  direction.^  Previous  to  1898  the  Illinois  board  could  not 
reduce  the  aggregate,  but  in  this  year  it  was  empowered  to  alter 
the  total  in  either  direction  by  10  per  cent.^ 

Irregular  or  Infrequent  Equalization.  —  The  infrequency  of 
equalization  was  in  some  states  another  cause  of  inefficiency.  In 
this  respect  there  has  been  wide  variation  in  practice.  Maryland 
has  headed  the  list  with  only  five  revaluations  of  real  estate,  at 
irregular  intervals,  in  the  nineteenth  century.^    Maine  had  a 

^  Colorado  Tax  Commission,  Report,  191 2,  p.  18. 

^  Cf.  below,  p.  50.     Even  this  power  was  withdrawn  in  1900. 

^  Laws  of  Minnesota,  i860,  ch.  i.  ^  Laws  of  Michigan,  1851,  p.  143,  §4. 

*  Laws  of  Kansas,  1861,  ch.  30.  *  Laws  of  Illinois,  1898,  p.  34. 

^  Cf.  Report  of  the  Special  Tax  Commission  of  Maryland,  1913,  p.  170.  Cf. 
also  T.  S.  Adams'  argument  that  this  infrequent  appraisal  was  no  hardship,  since 
the  great  expense  of  more  frequent  revaluations  tended  to  outweigh  the  possible 
gain.     Taxation  in  Maryland,  p.  37. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       zy 

decennial  revaluation  from  1820  to  1890,  when  the  period  was 
changed  to  a  biennial  term.^  Ohio  in  19 10  abandoned  for  a  quad- 
rennial appraisal  the  decennial  period  which  had  prevailed  since 
1860.'^  Michigan  has  used  a  quinquennial  period,  Missouri  a 
biennial,  while  Wisconsin,  California,  Illinois,  and  New  York  have 
revalued  real  estate  annually.  Indiana  has  tried  at  different  times 
periods  of  five,  two,  six,  and  finally  four  years,  with  equally  indif- 
ferent success  in  the  results.  There  has  been  little  to  the  advan- 
tage of  any  of  these  boards  owing  to  the  lack  of  adequate  powers 
and  of  a  proper  sense  of  the  responsibihties  which  rested  upon 
them.  The  work  of  the  Illinois  board  in  annual  session  has  been 
no  more  creditable  than  that  of  the  Ohio  decennial  board.  Given 
the  other  conditions  which  prevailed,  inefficiency  was  inevitable, 
though  the  infrequency  of  meeting  lessened  by  so  much  the 
chance  of  possible  relief. 

It  seems  clear  enough  from  this  review  of  the  structure  and 
powers  of  the  state  boards  of  equalization  that  they  would  be  in- 
adequate to  afford  any  guarantee  of  effective  control  of  the  situa- 
tion. The  improbability  of  adequate  equalization  by  such  boards 
is  further  increased  by  a  consideration  of  the  new  conditions 
which  were  developing  —  a  development  which  meant  virtually 
the  breakdown  of  the  general  property  tax.  These  conditions 
were  the  enormous  increase  of  public  expenditures,  the  funds  for 
which  were  gotten  mainly  through  taxation;  and  in  addition,  the 
phenomenal  growth  of  intangible  wealth. 

The  Civil  War  marked  for  the  older  states  a  turning  point  in 
their  fiscal  history  and  signalized  the  beginning  of  an  era  of  pubHc 
expenditure  which  had  seen  no  parallel  in  the  history  of  any  pre- 
vious epoch.  The  first  cause  of  this  increase  was  the  additional 
burden  imposed  by  the  war  itself,  a  burden  borne  the  more  cheer- 
fully because  it  was  expected  to  be  but  temporary.^  But  the  high 
level  of  public  outlay  reached  in  1865  has  served  for  both  state  and 
federal  governments  merely  as  the  basis  for  an  expansion  as  yet 

*  Cf.  below,  p.  n8. 

^  Since  1913  the  various  tax  laws  have  permitted  the  reassessment  of  real  estate 
in  the  discretion  of  some  taxing  authority,  state  or  local.    Cf.  below,  ch.  16. 

'  Cf.  Taussig,  Tariff  History  of  the  United  Stales,  pp.  172, 173,  for  a  statement 
of  the  popular  attitude  toward  high  tariff  rates  during  the  War. 


28  THE  STATE  TAX  COMMISSION 

unchecked  for  either.^  For  the  states  there  has  been  the  whole 
modern  movement  toward  economic  and  social  betterment  at 
public  expense,  and  the  enlargement  of  the  entire  administrative 
organization  entailed  by  these  wider  activities.  This  extension  of 
functions,  with  its  concomitant  growth  of  the  administrative 
organization,  has  occasioned  a  phenomenal  increase  in  the 
amounts  required  to  be  raised  through  taxation.  The  earlier 
special  tax  commissions  were  greatly  concerned  with  this  problem 
and  their  reports  contained  frequent  reference  to  the  recent  rapid 
increase  of  the  public  burdens. ^  The  figures  showing  the  growth 
of  taxation  in  New  York  have  already  been  given. ^  Massa- 
chusetts presents  a  similar  experience.  The  Boston  tax  rate  in 
1822  was  36  cents  per  $100.  As  late  as  i860  the  general  level 
throughout  the  state  was  from  60  cents  to  $1.00,  and  in  1861  the 
average  tax  rate  was  83  cents.^  The  average  direct  state  revenue 
during  the  years  1856-60  had  been  $1,125,000  but  the  average  of 
the  next  four  years  was  $4,000,000.  In  1859-61  the  state  levy  had 
averaged  less  than  $300,000,  but  in  1865  it  was  $5,000,000.  The 
total  yield  from  the  general  property  tax  was  $7,600,000  in  1861, 
and  $16,800,000  in  1865.^ 

The  universality  of  this  tendency  toward  higher  tax  burdens  is 
shown  by  the  general  advance  of  tax  rates  after  1860.^  In  this 
year  the  average  tax  rate  for  the  whole  United  States  was  78  cents 
per  $100  of  assessed  valuation.  Ten  years  later  it  was  $1.98.  The 
average  rate  receded  slightly  in  the  next  two  census  years,  to  $1.83 

^  Cf.  Bullock,  "  The  Growth  of  Federal  Expenditures,"  Pol.  Sci.  Quart.,  xviii, 
p.  97. 

^  Cf.  Chapman,  op.  cil.,  passim. 

*  Cf.  above,  p.  23. 

*  Bullock,  "  A  Classified  Property  Tax,"  Proceedings  of  the  National  Tax  Con- 
ference, 1909,  p.  96. 

*  Friedman,  The  Taxation  of  Corporations  in  Massachusetts,  p.  24.  The  Massa- 
chusetts Special  Tax  Commission  of  1875  said:  "  The  War  of  the  Rebellion  brought 
with  it  an  enormous  expenditure,  and  an  uiflated  paper  currency.  .  .  .  The 
holders  of  personal  property  .  .  .  were  stimulated  to  extraordinary  efforts  to 
evade  their  share  of  the  common  burden,  while  the  banks  .  .  .  without  exception 
surrendered  their  charters  and  became  National  Banks.  The  state  and  the  munic- 
ipalities were  deprived  of  resources  at  a  time  when  they  were  experiencing  a 
pressing  need  for  revenue."    Report,  pp.  123, 124. 

*  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1913,  i,  p.  751. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       29 

and  $1.85  respectively,  but  advanced  to  $2.05  in  1902.  While 
this  increase  was  doubtless  due,  in  part,  to  evasion  of  assessment, 
yet  there  was  unquestionably  an  advance  to  a  higher  level  of 
taxation  by  1870,  the  greater  burden  of  which  stimulated  in- 
terest in  the  problems  of  tax  reform  and  of  more  equitable  tax 
distribution.  Throughout  the  country  the  increasing  difficulty 
of  securing  adequate  returns  from  taxation  forced  attention  to 
the  question  of  tax  administration.  Reference  has  already  been 
made  to  the  number  of  special  tax  commissions  which  have 
been  created  for  the  study  of  these  problems.^  In  Indiana 
"  The  subject  of  taxation  was  brought  into  prominence  by 
the  condition  of  the  state's  revenues.  The  state  was  in  debt 
and  the  debt  was  being  increased  annually  by  over  $500,000.  It 
was  necessary  to  raise  additional  revenue."  -  The  Iowa  special 
tax  commission  of  1893  asserted,  "  The  credit  and  financial 
standing  of  our  state  are  impaired  by  the  low  valuation  that  now 
obtains."  ^  In  the  same  year  the  preamble  to  the  resolution- 
passed  by  the  Ohio  legislature  creating  a  special  tax  commission 
recited  that  the  existing  tax  law  needed  revision  and  that  the 
state  was  compelled  to  find  additional  revenue.* 

While  the  increased  fiscal  needs  of  states  and  local  communities 
have  been  compelling  greater  demands  upon  the  taxpayers,  there 
has  been  in  progress  in  the  United  States  a  subtle  transformation 
of  the  forms  of  wealth,  which  has  rendered  the  general  property  tax 
a  steadily  less  effective  agency  for  the  just  distribution  of  the  tax 
burden.  Intangible  property  had  existed,  of  course,  from  colonial 
times,  and  it  had  even  begun  to  appear  in  considerable  volume 
before  the  Civil  War.  But  the  American  Industrial  Revolution 
has  only  worked  out  its  full  effects  since  that  time.  The  rise  of  the 
corporation  as  the  chief  form  of  industrial  organization,  the  tre- 
mendous accumulation  of  wealth  as  the  result  of  greater  national 
productivity,  and  the  general  development  of  the  national  re- 
sources —  these  phenomena  have  made  possible  the  creation  of  an 
enormous  volume  of  intangible  property.   The  steadily  increasing 

1  Cf.  above,  p.  5,  note. 

*  J.  P.  Dunn,  The  New  Tax  Law  in  Indiana,  Indianapolis,  1892,  p.  6. 
'  Report  of  the  Special  Tax  Commission  of  Iowa,  1893,  p.  8. 

*  Report  of  the  Tax  Commission  of  Ohio,  1893,  p.  i. 


30  THE  STATE  TAX  COMMISSION 

evasion  of  these  more  elusive  forms  of  wealth  has  been  the  "bloody 
angle"  of  criticism  against  the  general  property  tax  and  the  latest 
administrative  reform,  supervision  of  the  local  assessment,  marks 
the  final  attempt  to  save  the  tax  by  eliminating  this  weakness. 

With  the  rapid  increase  of  the  tax  burden  after  the  middle  of 
the  nineteenth  century,  the  growing  evasion  of  intangible  per- 
sonal property  gave  rise  to  a  vicious  circle  of  cause  and  effect 
which  worked  havoc  with  all  standards  of  justice  in  taxation.* 
The  pressure  of  a  steadily  advancing  tax  rate  popularized  com- 
petitive undervaluation  until  a  generally  accepted  canon  of  taxa- 
tion among  local  tax  officials  was  "  Keep  down  the  duplicate  in 
order  to  reduce  the  state  tax."  These  officials  embarked  upon  this 
course  notwithstanding  all  the  penalties  of  the  law  and  the  solem- 
nity of  their  oaths  of  office.   The  lower  valuation  meant  a  higher 
rate  for  local  purposes,  but  the  total  taxes  to  be  levied  were 
somewhat  reduced  by  the  smaller  quota  of  state  and  county  taxes. 
The  higher  local  rate,  however,  began  to  bear  more  and  more 
heavily  upon  property  and  at  last  to  approach  confiscation  of  the 
entire  income  from  certain  classes  of  investments. ^  The  natural 
result  of  this  increased  pressure  was  a  progressive  evasion  by 
intangible  and  readily  moveable  property,  thereby  lessening  the 
total  valuation  and  increasing  still  further  the  rate  necessary  to 
raise  the  needed  local  revenue.    The  incentive  was  then  still 
greater  to  secrete  or  undervalue  the  moveables  and  intangibles. 
Evidence  of  the  operation  of  this  vicious  circle  may  be  seen  in  the 
personal  property  assessments  of  almost  any  city  or  state  since 
the  Civil  War.^  The  only  escape  under  the  general  property  tax 
has  been  the  recent  action  of  several  states  in  limiting  the  total 
tax  rate,  thereby  forcing  higher  valuations  and  affording  some 
guarantee  to  personal  property  owners  that  the  whole  income 
from  their  property  would  not  be  confiscated.^    In  some  other 

1  Cf.  Bullock,  "  A  Classified  Property  Tax,"  Proceedings  of  the  National  Tax 
Conference,  1909,  pp.  95-1 11,  especially  p.  97. 

*  The  tax  rate  in  many  districts  has  been  $4.00  or  above  on  the  $100. 

3  E.  g.,  E.  D.  Durand,  The  Finances  of  New  York  City,  pp.  190-195;  C.  C.  Wil- 
liamson, The  Finances  of  Cleveland,  pp.  67,  68;  J.  H.  Hollander,  Financial  History 
of  Baltimore,  p.  384;  C.  P.  Huse,  The  Financial  History  of  Boston,  pp.  376,  377, 

*  E.  g.,  Kansas,  Ohio,  Wyoming,  Colorado. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       3  I 

states  the  condition  of  underassessment  has  been  officially  recog- 
nized by  the  legislature  and  the  legal  basis  of  assessment  has  been 
reduced  to  a  percentage  of  full  value,  or  else  the  levies  have 
assumed  the  existence  of  undervaluation  without  legalizing  it. 
For  example,  Iowa  in  1897  adopted  25  per  cent  of  full  value  as  the 
legal  basis  of  assessment  ^  and  Illinois  in  the  following  year 
accepted  20  per  cent  of  full  value  as  the  legal  basis.^  The  latter 
percentage  was  advanced  in  1909  to  33^  per  cent  with  a  corre- 
sponding reduction  in  the  tax  rates.^  Similar  depreciation  of  the 
basis  of  assessment  occurred  in  Minnesota  and  Washington  and  in 
both  these  states  it  has  proved  an  effective  barrier  to  the  work  of 
the  tax  commission  in  establishing  needed  reforms.^  Minnesota 
in  19 13  legalized  the  percentage  basis,  requiring  the  assessment 
of  different  classes  of  property  at  varying  percentages  of  full 
value.^ 

To  the  present  time  state  equalization,  by  a  board  or  otherwise, 
has  been  provided  in  some  thirty-nine  states,  including  those  in 
which  the  later  tax  commissions  have  taken  over  this  function. 
The  earlier  boards  were  established  almost  exclusively  in  the 
northern  states,  though  not  all  of  these  states  havehad  such  boards. 
The  comparatively  late  appearance  of  heavy  direct  taxation  in 
southern  states  and  the  relatively  small  amount  of  locally  owned 
intangible  property  delayed  intense  competitive  undervaluation 
and  the  demand  for  state  equalization.^   The  recent  changes  in 

^  Code  of  Iowa,  1897,  p.  457. 

^  Laws  of  Illinois,  Special  session,  1898,  p.  36. 

^  Ihid.,  1909,  p.  308.  Acceptance  of  the  depreciated  basis  by  the  legislature 
occurred  also  in  Kansas,  where  the  treasurer  asserted  in  i886:  "  The  levies  pro- 
vided for  by  law  last  year  would  raise  —  no  person  can  say  how  much  —  certainly 
$3,000,000;  whereas,  with  the  present  valuation,  but  about  $1,000,000  is  raised. 
Treasurer  of  Kansas,  Report,  1886,  p.  94. 

*  Cf.  below,  chs.  12  and  13. 

*  Laws  of  Minnesota,  1913,  ch.  483.  The  auditor  of  Missouri  recommended  a 
50  per  cent  basis  in  1900.  Report  of  the  Missouri  Tax  Commission,  1903,  p.  14. 
Washington  adopted  a  50  per  cent  basis  in  1913. 

®  Cf.  Seligman,  Essays  in  Taxation,  p.  20;  Bullock,  The  General  Property  Tax. 
Also,  Hart,  "  The  License  System  in  Louisiana,"  Proceedings  of  the  National  Tax 
Conference,  1909,  pp.  275-295.  Cf.  also  Report  of  the  Special  Tax  Commission  of 
Louisiana,  1908,  p.  8.  Florida  established  a  state  board  of  equalization  in  1871 
{Laws,  ch.  1841)  but  it  was  abolished  after  one  report  {Laws,  1872,  ch.  1887). 


32  THE  STATE  TAX  COMMISSION 

tax  systems  and  the  growth  of  wealth  in  the  South  have  altered 
the  situation,  and  the  practices  which  once  characterized  assess- 
ments in  northern  states  only  are  now  to  be  found  in  southern 
states  as  well.  The  collapse  of  local  administration  has  led  to  a 
general  demand  for  state  equahzation  in  those  commonwealths 
north  and  south  which  have  not  yet  progressed  to  this  stage  of 
administrative  reform.  After  three  special  tax  commissions  in 
New  Jersey/  a  board  of  equalization  with  power  to  adjust  valua- 
tions on  appeal  was  established  in  1905.^  Similar  recommenda- 
tions were  made  by  the  Delaware  special  tax  commission  of  1893, 
and  for  Mississippi  by  a  student  of  the  tax  system  in  1899.' 
Louisiana  created  such  a  board  in  1906,*  North  Carolina  in  1907;  ^ 
and  the  Arkansas  Tax  Commission  recommended  in  1910  that  its 
powers  be  extended  to  include  authority  to  change  individual 
assessments.^  The  Virginia  special  tax  commission  of  191 1  recom- 
mended the  establishment  of  a  permanent  tax  commission  with 
power  to  equalize  among  the  counties,  but  the  plan  was  defeated 
in  the  legislature.^  The  Texas  special  tax  commission  of  1899 
declared  that  as  far  as  concerned  the  state  tax,  nothing  was  more 
unequal  than  the  values  in  the  several  counties  of  the  state.* 
Since  191 2  the  Texas  Tax  Commissioner  has  been  urging  the 
advisability  of  creating  a  board  of  equalization  or  a  tax  com- 
mission with  power  to  equalize.^  These  more  recent  recommenda- 
tions for  a  state  board  of  equalization  are  really  behind  the  times. 
State  equalization  may  be  necessary,  but  a  board  with  equalizing 
powers  only  would  be  of  small  avail.   In  reality,  what  is  needed  is 

'  The  first  proposal  came  from  the  commission  of  1880,  the  second  from  the 
commission  of  1890,  and  the  third  from  the  commission  of  1905.  These  reports 
are  reviewed  on  this  point,  by  the  report  of  the  last-named  commission,  pp.  34,  35. 

2  Cf.  below,  pp.  ii4fT. 

^  Brough,  Taxation  in  Mississippi,  p.  204.  Mississippi  created  a  state  board  of 
equalization  in  1874  {Laws,  ch.  28),  but  it  soon  disappeared. 

*  Laws  of  Louisiana,  1906,  No.  182. 

^  Laws  of  North  Carolina,  1907,  ch.  261. 

8  Arkansas  Tax  Commission,  Report,  1910,  pp.  42,  43. 

'  Report  of  the  Virginia  Tax  Commission,  1911,  p.  18.  On  the  reasons  for  the 
failure,  cf.  D.  R.  Freeman,  "  The  Defeat  of  the  Virginia  Tax  Reform  Bill,"  Pro- 
ceedings of  the  National  Tax  Conference,  191 2,  pp.  419-423. 

*  Report  of  the  Tax  Commission  of  Texas,  1899,  p.  5. 
«  Cf.  below,  p.  563. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       33 

a  state  tax  commission,  with  power  not  only  to  equalize  but  also 
to  supervise  local  assessments.^ 

State  Boards  of  Corporate  Assessment 

The  second  stage  in  the  evolution  of  the  centralized  tax  depart- 
ment was  state  assessment  of  corporations.  In  general  this  stage 
succeeded  that  of  state  equalization  of  local  assessments,  though 
in  a  few  states,  especially  in  the  South,  it  preceded  state  equaliza- 
tion, while  in  some  others  the  two  functions  were  established 
simultaneously.  The  principal  reasons  for  centralization  at  this 
point  were  the  difficulties  of  corporate  valuation  and  assessment, 
and  the  need  of  supplementing  the  revenue  from  the  general  prop- 
erty tax.  An  examination  of  the  state  session  laws  shows  that 
the  majority  of  these  boards  were  established  in  the  twenty  years 
following  the  Civil  War,  a  period  in  which  state  and  local  expendi- 
tures were  rising  rapidly  and  the  general  property  tax  was  going 
to  pieces  under  the  heavier  strain.  It  was  in  this  period,  too,  that 
the  public  attitude  toward  public  service  corporations,  especially 
railroads,  underwent  a  marked  change  reacting  from  an  extremely 
tolerant  policy  of  favoritism  and  encouragement  to  an  equally 
extreme  attitude  of  suspicion,  restriction  and  regulation.  The 
"  Granger  Movement  "  left  its  trail  of  state  railroad  commissions 
equipped  with  varying  degrees  of  authority  over  rates  and  con- 
ditions of  service.  As  the  scales  fell  from  their  eyes  the  people  saw 
that  in  taxation  as  in  rate  structures  there  was  need  of  central 
administrative  control. 

Originally  the  states  made  no  distinction  between  corporate 
and  other  property  but  sought  to  tax  all  property  within  their 
jurisdiction  according  to  the  uniform  rules  of  the  general  property 
tax. 2  In  the  era  of  popular  craze  for  internal  improvements  at 
any  cost  exemptions  and  concessions  of  various  sorts  were  offered 
by  some  communities  in  favor  of  internal  improvement  companies 
but  tax  exemptions  were  never  so  generally  used  as  were  the  more 

^  Certain  recent  special  tax  commissions  have  recognized  this  fact.  Cf.  e.  g., 
Report  of  tlie  Commission  to  Investigate  Tax  Assessments  in  Neu>  Jersey,  1913,  p.  31; 
also  Report  of  the  Commission  to  Investigate  Assessment  and  Taxation  in  Tennessee, 

1915,?-  31- 

'  Cf.  Seligman,  Essays  in  Taxation,  pp.  145-148. 


34  THE  STATE  TAX  COMMISSION 

direct  forms  of  financial  assistance.^  The  growth  of  interstate 
transportation  and  the  increase  of  earning  capacity  placed  the 
problem  of  railroad  assessment  beyond  the  capacity  of  the 
local  assessors.  The  assumption  of  this  function  by  the  state 
was  a  natural  and  logical  development  that  was  forced  upon  it  by 
circumstances.  . 

The  usual  method  of  effecting  such  administrative  centraliza- 
tion was  through  the  erection  of  a  state  board  of  assessment. 
Some  states,  which  already  had  a  state  board  of  equalization, 
imposed  upon  that  body  the  additional  duties  of  corporate  assess- 
ment. In  most  other  cases  certain  state  officers  were  required  to 
act  ex  officio  as  assessors  of  certain  corporations.  These  assess- 
ment boards  were  often  given  fairly  extensive  powers,  includ- 
ing the  authority  to  call  and  examine  witnesses,  to  compel  the 
production  of  books  and  papers,  and  to  have  access  to  the  records 
of  the  business.  State  control  of  corporate  assessment  forced  the 
consideration  of  methods  of  taxation  which  would  achieve  the 
desired  result  of  increasing  the  tax  burden  on  the  companies  thus 
detached  from  the  local  jurisdiction.  The  attempt  to  develop  an 
adequate  system  of  corporate  taxation  led  to  great  diversity  in 
practice ;  but  out  of  these  originally  wide  variations  there  emerged 
finally  certain  fairly  definite  types  of  tax  system,  which  as  applied 
to  railroads  have  been  characterized  as  follows :  - 

Railways  are  taxed  either  upon  an  ad  valorem  or  upon  a  specific  basis, 
or  upon  a  combination  of  the  two.  The  ad  valorem  taxes  fall  into  two  classes: 
First,  taxes  on  the  value  of  real  and  personal  property;  second,  taxes  on  the 
value  of  stocks  or  bonds  or  on  valuation  based  on  earnings,  dividends  or 
other  results  of  operation.  The  specific  taxes  fall  into  three  classes:  First, 
taxes  on  stocks,  bonds,  loans,  etc.;  second,  taxes  on  gross  or  net  earnings, 
revenue,  or  dividends;  third,  taxes  on  traffic  or  some  physical  quality  or 
property  operated,  or  on  privilege. 

By  a  somewhat  different  grouping  these  taxes  have  been  classi- 
fied as  taxes  on  capitalization,  taxes  on  gross  receipts,  and  a  modi- 
fied form  of  the  general  property  tax.    The  first  two  of  these  forms 

1  McCrea,  op.  cit.,  p.  1009;  also  Cleveland  and  Powell,  Railroad  Promolion  and 
Capitalization,  pp.  176-178. 

^  Bureau  of  the  Census,  Commercial  Valuation  of  the  Railway  Operating  Properly 
in  the  United  States,  Bulletm  No.  21,  1904. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       35 

have  been  most  popular  north  of  the  Ohio  and  east  of  the  Missis- 
sippi, while  the  third  has  prevailed  more  commonly  in  the  remain- 
der of  the  country.^  Ad  valorem  taxationin  the  form  of  a  modified 
general  property  tax  has  displayed  some  tendency  in  recent  years 
to  encroach  upon  the  territory  of  the  other  two  forms.  The  taxa- 
tion of  railroads  on  gross  receipts  received  a  severe  blow  in  its  aban- 
donment by  Michigan  and  Wisconsin  for  an  ad  valorem  system 
and  at  the  present  time  but  five  states  employ  this  method. ^  The 
transition  represents  in  part,  at  least,  the  demand  for  greater 
accuracy  in  allocating  the  tax  burden.  The  responsibility  for  the 
adjustment  of  the  tax  burden  upon  the  corporation  under  the 
gross  earnings  system  is  largely  legislative  while  under  the  ad 
valorem  system  it  is  chiefly  administrative.  The  failure  of  legis- 
latures to  display  the  desired  sensitiveness  to  the  interests  of  the 
people  has  engendered  a  certain  distrust  in  legislative  responsi- 
bility.^ Out  of  this  distrust  grew  the  feeling  that  it  was  impossible 
to  tax  the  railroads  adequately  under  specific  taxation,  inasmuch 
as  any  change  in  the  rates  required  the  approval  of  a  majority 
of  the  legislature  and  the  difficulty  of  securing  such  changes 
made  the  system  exceedingly  rigid  and  inflexible.  The  responsi- 
bility for  delays  in  adjusting  the  tax  rates  was  neither  easily  nor 
certainly  fixed,  and  discontent  naturally  emerged  with  the  prac- 
tical operation  of  specific  taxes.  The  investigations  of  tax  com- 
missions in  both  Wisconsin  and  Michigan  led  to  the  conclusion 
that  the  railroads  were  not  paying  their  fair  share  of  taxes,  and 
the  popular  distrust  of  the  legislature  as  an  agency  of  relief  was  a 
factor  in  the  adoption  of  the  ad  valorem  system.^  The  Minnesota 
tax  commission  has  on  two  separate  occasions  shown  that  the 
railroads  were  paying  less  taxes  than  other  property  but  in  each 
case  a  second  contest  in  the  legislature  was  necessary  in  order  to 
secure  an  advance  in  the  rate  on  gross  earnings,  while  in  the  first 
case  the  proposal  was  submitted  to  the  people  the  second  time 

^  McCrea,  op.  ciL,  pp.  1012-1015;  cf.  Seligman,  Essays  in  Taxation,  pp.  170- 
177. 

^  California,  Maine,  Maryland,  Minnesota,  and  Connecticut. 

'  The  recent  movement  for  the  initiative  and  referendum  illustrates  the 
feeling. 

*  See  below,  chs.  8  and  9. 


36  THE  STATE  TAX  COMMISSION 

before  it  became  a  law.^  Without  endorsing  either  method  at  this 
point  it  is  apparent  that  such  difficulties  as  these  have  been  of 
weight  in  provoking  discontent  with  the  specific  system.^ 

The  complete  results  of  corporate  assessment  by  state  boards  of 
assessors  are  not  available.  This  material  is  still  for  the  greater 
part  buried  away  in  state  documentary  files.  The  accessible  evi- 
dence shows,  however,  that  although  the  ex  officio  boards  effected 
valuable  improvement  over  the  primitive  conditions  of  the  locally 
administered  general  property  tax,  yet  their  results  left  much  to 
be  desired.  Some  indication  of  the  condition  of  valuations  may  be 
seen  in  the  comparative  figures  of  the  older  boards  and  those  of 
the  new  tax  commissions.  The-  Indiana  board  of  tax  commis- 
sioners added  $100,000,000  to  the  assessment  of  railroads  the  first 
year;  the  Kansas  commission  added  more  than  $200,000,000  to 
the  total  corporate  assessment;  the  Ohio  commission  added 
$400,000,000,  and  comparable  advances  were  made  in  other 
states.  These  increases  are  strikingly  suggestive  of  the  low  level 
of  results  which  satisfied  the  first  boards  of  corporate  assessment. 

The  reasons  for  such  inefficiency  have  been  various.  The 
defects  of  the  ex  officio  and  the  large  elective  state  administrative 
boards  have  already  been  discussed.^  These  defects  have  pre- 
vented efficient  corporation  assessment  for  the  same  reasons  that 
they  prevented  proper  equalization  of  local  assessments  of  other 
property.  The  Illinois  board  of  equahzation  has  successfully 
resisted  all  efforts  to  compel  it  to  make  a  proper  assessment  of  cer- 
tain public  service  corporations  in  Chicago.^  The  Missouri  board 
of  equalization  was  accused  of  favoritism  in  railroad  assessments, 
and  its  best  reply  was  that  it  was  assessing  railroads  on  a  higher 
basis  than  the  Illinois  board,  a  very  questionable  defense  under 
the  circumstances.^  One  of  the  most  notorious  cases  that  has 
come  to  light  was  the  action  of  the  Nevada  State  Convention  of 

1  Minnesota  Tax  Commission,  Report,  1908,  p.  85,  and  191 2,  p.  4.  The  con- 
stitution requires  a  popular  vote  on  any  proposal  to  change  the  rate  of  tax  on  gross 
earnings. 

^  Cf.  Ibid.,  191 2,  for  an  extensive  review  and  criticism  of  the  ad  valorem  system. 
Cf.  also  below,  ch.  13. 

'  See  above,  pp.  24-27.  ■*  See  below,  pp.  75,  76. 

^  Judson,  op.  cU.,  p.  82. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       37 

County  Assessors,  which  assesses  railroad  property.  In  1906  a 
progressive  minority  sought  to  make  the  railroad  valuation  some- 
thing more  than  nominal;  but  after  taking  more  than  sixty  bal- 
lots the  convention  adopted  the  utterly  inadequate  valuation 
originally  decided  upon  by  the  majority.^ 

Further,  the  earlier  laws  were  often  lacking  in  clearness,  and 
did  not  always  give  adequate  powers  to  the  boards  charged  with 
their  enforcement.  But  little  inducement  was  required  to  per- 
suade the  ex  officio  assessment  boards  to  lapse  into  the  same  prac- 
tices in  assessing  corporations  as  had  become  characteristic  of 
their  work,  and  of  the  work  of  similar  boards,  in  the  state  equali- 
zation. Even  this  small  encouragement  was  afforded,  however,  by 
the  inadequate  laws  and  the  absence  of  any  scientific  spirit  in 
approaching  the  problem;  and  the  unsatisfactory  results  which 
appeared  were  the  natural  fruit  of  imposing  tasks  of  such  magni- 
tude upon  men  so  little  fitted  for  them,  with  defective  statutes  and 
restricted  powers  to  add  to  their  difficulties.  Corporation  assess- 
ments drifted  into  ruts,  and  but  Uttle  attempt  seems  to  have  been 
made  to  keep  abreast  of  the  advance  in  taxable  capacity.  In 
short,  the  older  corporation  assessment  boards  seem  to  have  been 
repeating,  for  these  classes  of  taxpayers,  many  of  the  vicious  prac- 
tices which  have  been  followed  by  the  local  assessors  in  their 
administration  of  the  general  property  tax. 

Centrahzation  of  corporate  taxation  has  been  incomplete,  both 
with  regard  to  the  property  of  the  corporation  and  with  regard 
to  classes  of  corporations.  Everywhere  the  central  assessment 
under  the  ad  valorem  system  covers  only  the  property  actually 
used  in  the  business.  All  other  real  estate  is  taxed  where  situated 
in  the  same  manner  as  adjoining  property,  though  in  practice  dis- 
criminations are  sometimes  made  against  or  in  favor  of  corporate 
real  estate.  In  Wisconsin  and  New  Jersey  the  cities  succeeded  in 
temporarily  detaching  certain  definitely  localized  operating  prop- 
erty from  the  state  assessment.-  The  motive  here  was  the  increase 
of  municipal  revenue  but  there  was  evidently  a  confusion  between 
local  assessment  and  the  allocation  of  a  somewhat  larger  share  of 

^  Nevada  State  Convention  of  Assessors,  Report,  1906,  passim. 
*  See  below,  pp.  104,  263,  264. 


38  THE  STATE  TAX  COMMISSION 

the  taxes  paid  on  the  state  assessment.  Further,  while  the  func- 
tion of  valuation  has  been  centrahzed,  the  determination  of  the 
tax  rates  is  often  left  to  the  local  tax  districts,  subject  only  to 
the  general  restrictions  on  the  local  levying  power.  In  such 
cases  the  centrally  determined  valuation  is  apportioned  among 
the  various  counties,  cities  and  tax  districts  on  the  basis  of  mile- 
age. This  process  has  proved  very  uneconomical  in  the  case  of 
certain  transmission  companies  since  the  greater  part  of  the  re- 
ceipts in  small  districts  has  been  absorbed  by  the  expenses  of 
certification  and  collection. 

Centralized  corporate  assessment  is  incomplete  also  in  that  it 
has  been  confined  almost  wholly  to  the  public  service  corpora- 
tions, though  there  are  private  corporations  in  many  states  which 
exceed  in  size  and  importance  some  of  the  public  service  corpora- 
tions which  are  now  assessed  through  state  agencies.  With  the 
exception  of  the  few  states  in  which  fairly  complete  systems  of 
corporate  taxation  have  been  developed,  it  is  still  the  rule  to  tax 
private  business  corporations  through  the  agency  of  the  local 
assessor.^  In  a  few  instances  the  general  property  tax  has  been 
supplemented  by  franchise  or  capitalization  taxes.  It  need  hardly 
be  pointed  out  that  the  local  piecemeal  assessment  of  the  larger 
private  corporations  is  as  indefensible  as  would  be  the  local  assess- 
ment of  railroads.  This  proposition  was  sustained  by  the  Michi- 
gan Special  Commission  of  Inquiry  into  Taxation  of  191 1,  which 
suggested  that  the  board  of  tax  commissioners  be  given  power  to 
assess  all  business  corporations.^  The  Wisconsin  income  tax  over- 
comes the  deficiencies  of  local  assessment  of  personal  property  by 
central  assessment  of  incomes,  including  corporate  incomes.  In 
Michigan,  Minnesota,  Arizona,  and  Ohio  the  tax  commission  has 
assumed  the  assessment  of  mines.  Aside  from  such  instances, 
however,  the  assessment  of  private  corporations  remains  a  local 
matter,  subject  only  to  such  central  control  as  may  be  exercised 
over  the  whole  local  assessment  process  by  a  state  tax  department. 
The  tax  commission  should  be  permitted  and  required  to  advise 
the  local  assessors,  at  least,  if  the  whole  problem  of  the  valuation 

'  Seligman,  Essays  in  Taxation,  pp.  195-215. 

^  Final  Report  of  the  Commission  of  Inquiry  into  Taxation,  191 1,  pp.  46-49. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       39 

of  the  larger  industrial  and  mercantile  companies  is  to  be  dealt 
with  under  the  general  property  tax. 

The  centralizing  movement  in  the  taxation  of  corporations  was 
for  a  long  time  confined  to  the  states,  but  in  1909  the  federal 
government  entered  this  field  by  the  enactment  of  an  excise  tax  on 
corporations,  a  tax  which  was  later  merged  with  the  income  tax  of 
1913.  The  first  measure  was  not  so  much  a  necessary  complement 
to  existing  federal  taxation  as  the  outcome  of  opposing  pohtical 
forces.^  The  second  was  avowedly  made  a  part  of  the  revenue 
plan  as  an  offset  to  certain  tariff  reductions.  In  addition  to  this 
direct  participation  in  corporate  taxation  the  federal  government 
bids  fair  to  engage  more  extensively  in  the  movement  through 
contributory  channels.  The  increasing  popularity  of  physical 
valuation  as  a  guide  to  taxable  values  will  enhance  the  significance 
of  the  physical  survey  of  railroad  property  which  is  now  being 
conducted  by  the  Interstate  Commerce  Commission.  Professor 
Seligman  has  invoked  the  aid  of  the  federal  government  in  the 
administration  of  the  income  tax,  though  advocating  the  latter  as 
a  means  of  state  income,  owing  to  the  interstate  complications 
which  threaten  the  efficiency  of  state  administration.- 

The  State  Tax  Commission 

The  final  stage  of  the  development  here  outlined  has  been  the 
extension  of  state  control  over  the  actual  process  of  local  assess- 
ment. In  the  earlier  stages,  reform  was  attempted  either  by 
correcting  the  mistakes  after  they  had  been  made  or  by  removing 
the  assessment  entirely  from  local  jurisdiction.  But  the  fact  re- 
mains that  a  good  equalization  cannot  wholly  correct  a  poor 
assessment.  Experience  showed  that  even  a  good  equalization 
was  not  usually  obtained  under  the  older  regime.  The  inefficient 
results  of  ex  officio  administration  finally  became  intolerable  and 
the  tax  commission,  a  body  in  special  charge  of  tax  administra- 

*  Seligman,  The  Ivcome  Tax,  pp.  591-594,  describes  the  origin  of  the  corporation 
ta.x  of  1909. 

*  Seligman,  ibid.,  pp.  654-658.  Cf.  also  his  Presidential  Address  at  the  National 
Tax  Conference,  1914,  Proceedings,  pp.  186-198.  Also  the  discussion  by  T.  S. 
.Adams,  ibid.,  pp.  199,  200,  approving  this  policy. 


40  THE  STATE  TAX  COMMISSION 

tion,  has  emerged.  In  most  cases  it  has  taken  over  the  functions 
of  state  equalization  and  of  corporate  assessment;  but  its  own 
distinctive  function,  that  which  made  the  advent  of  the  tax  com- 
mission so  definite  an  advance,  was  the  supervision  of  local  assess- 
ments. None  of  the  boards  created  before  1891  had  possessed  this 
authority. 

In  some  states,  however,  a  certain  degree  of  supervisory  au- 
thority had  apparently  been  exercised  by  the  state  auditor,  by 
whom  the  blank  forms  were  prepared,  instructions  issued,  and  a 
certain  inspection  maintained  over  the  returns.  In  this  there  was 
no  real  supervision  of  the  local  assessors,  no  thorough  inspection 
of  their  work,  no  effective  authority  for  the  enforcement  of  sug- 
gestions. The  significant  feature  of  the  tax  commission's  super- 
vision has  been  the  actual  extension  of  a  varying  degree  of  control 
over  the  official  acts  of  the  assessor. 

The  difficulties  of  adequate  supervision  of  the  hundreds  of  local 
officials  were  not  comprehended  at  first  and  the  earlier  statutes 
which  created  tax  commissions  were  therefore  not  entirely  suc- 
cessful. In  fact  some  boards  have  been  able  to  exercise  merely 
advisory  authority,  which  has  proved  to  be  of  little  value  in  com- 
bating long-established  local  practices.  These  defects  have  been 
met  recently  in  some  states  by  conferring  upon  the  tax  commis- 
sions sweeping  powers  of  reassessment,  and  in  a  few  instances  the 
authority  to  remove  the  assessors.  Whether  the  tax  commission  is 
to  go  farther  and  appoint  the  assessor,  as  in  the  Ohio  experiment 
of  1 913,  or  whether  the  locality  is  to  continue  to  make  its  own 
assessment  subject  to  review  and  correction  from  above,  it  is  im- 
possible now  to  say.  It  is  really  a  question  of  local  self-govern- 
ment —  is  the  locality  to  choose  the  original  assessor,  or  shall  he 
be  chosen  by  the  state  ? 

The  former  practice  is  deeply  rooted,  but  the  conviction  has 
been  freely  expressed  that  to  the  practical  results  of  the  principle 
of  local  election  may  be  attributed  a  considerable  proportion  of 
the  difficulties  which  have  been  experienced  in  enforcing  the 
general  property  tax.^   Under  the  conditions  which  actually  pre- 

^  The  Kansas  special  commission  of  1901  said:  "  The  township  assessor  assesses 
the  voters  upon  whom  he  depends  for  reelection.    It  is  a  necessity  of  the  case,  and 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       4I 

vailed  —  great  increase  of  tax  burden  and  rapid  growth  of  intan- 
gible wealth  —  it  is  quite  questionable  if  central  assessment  could 
have  prevented  the  breakdown  which  actually  came,  though  it 
might  have  made  it  less  serious.  The  more  important  question 
today  is  whether,  for  the  future,  the  principle  of  local  selection  of 
the  assessing  officers  shall  be  retained  ? 

Two  opposing  movements  are  discernible.  One,  headed  by  the 
special  tax  commissions,  has  advanced  toward  the  goal  of  greater 
state  control  of  the  whole  machinery  of  assessment;  the  other, 
headed  by  the  advocates  of  "  home  rule  "  for  cities,  has  reacted 
against  all  centralizing  tendencies.  As  early  as  1875  the  Massa- 
chusetts special  tax  commission  suggested  that  the  tax  commis- 
sioner be  empowered  to  appoint  one  member  on  each  local  board 
of  assessors,  thinking  to  secure  in  this  way  general  uniformity  in 
the  enforcement  of  the  tax  laws.^  The  ideal  of  state-wide  uniform- 
ity in  administration  was  upheld  also  by  the  Ohio  special  tax 
commission  of  1893  in  proposing  a  permanent  tax  commission 
with  power  to  appoint  a  county  board  of  three  members  which 
should  have  complete  charge  of  assessment  and  equahzation  in  the 

it  universally  appears  in  practice,  that  the  assessment  becomes  a  machine  for  the 
securing  of  votes,  and  in  too  many  instances  individual  inequalities  are  a  direct 
result  of  this  defect."  Report,  1901,  p.  15.  Professor  Seligman  has  asserted  that 
"  the  assessors  are  compelled  openly  to  disregard  their  oath  or  to  incur  certain  de- 
feat at  the  ne.xt  election."  Pol.  Sci.  Quart.,  v,  p.  26.  In  New  Jersey  one  assessor 
based  his  appeal  for  reelection  upon  the  statement  that  he  had  reduced  the  valua- 
tion by  Sioo,ooo,  though  actual  values  had  increased  15  per  cent.  New  Jersey 
special  commission  of  191 2,  Report,  p.  21. 

The  assessor's  struggle  for  political  self-preservation  is  further  intensified  by 
the  short  term  which  quite  generally  prevails.  In  14  out  of  26  states  in  which  the 
office  of  county  assessor  was  elective  in  1913,  the  term  was  for  two  years.  In  the 
remaining  12  states  the  term  was  four  years.  Out  of  21  states  with  elective  town 
assessors,  9  were  elected  annually,  8  biennially,  3  triennially  and  i  quadrennially. 
Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1913,  i,  pp.  449  ff.  In  Illinois  it 
has  been  the  practice  to  elect  the  assessors  just  before  the  quadrennial  revaluation 
of  real  estate,  thereby  requiring  the  inexperienced  official  to  undertake  at  the  out- 
set one  of  the  most  difficult  and  important  of  his  duties  and  affording  great  ad- 
vantage to  those  localities  which  have  been  pressing  for  low  valuations.  The  New 
Jersey  board  of  state  assessors  secured  an  extension  of  the  assessor's  term  from 
one  to  three  years  and  recommended  a  further  extension  to  five  years.  Report, 
1891,  p.  14.  The  term  of  the  Oregon  assessor  has  recently  been  extended  to  four 
years. 

'  Report  of  the  Commission  on  Ta.xalion  in  Massachusetts,  1875,  PP-  85,  86. 


42  THE  STATE  TAX  COMMISSION 

county.^  This  proposal  passed  unheeded  at  the  time,  but  the 
present  permanent  tax  commission  was  given  the  right  in  19 13 
to  appoint  the  county  board  of  review,  and  the  power  of  removing 
the  county  assessors  who  were  to  be  appointed,  according  to  the 
same  act,  by  the  governor.  This  law  was  repealed  in  1915.^  The 
Kansas  Tax  Commission  aimed  at  improving  assessment  condi- 
tions while  preserving  a  measure  of  local  autonomy  in  its  recom- 
mendation of  191 2  that  county  boards  be  empowered  to  appoint 
county  assessors,  over  whose  work  the  commission  was  to  exercise 
close  supervision.^  Similar  recommendations  were  made  by  the 
Utah  board  of  equalization  in  19 10,''  the  Minnesota  Tax  Commis- 
sion in  191 2,  and  the  Massachusetts  Joint  Special  Commission  on 
Municipal  Finance  of  1913.^  In  Connecticut  the  tax  commis- 
sioner found  that  the  six  cities  in  which  the  assessors  were  ap- 
pointive under  charter  provisions  were  among  the  best  assessed 
districts  of  the  state."  These  proposals  have  not  all  been  adopted. 
They  indicate,  however,  the  trend  of  sentiment  among  the  prac- 
tical officials  and  the  special  students  and  investigators  of  condi- 
tions in  various  states. 

On  the  other  hand,  the  "  home  rule  "  advocates  are  demanding 
complete   surrender   of   state   control   over   municipal   affairs.^ 

^  Report  of  the  Tax  Commission  of  Ohio,  1803,  p.  71. 

2  See  below,  ch.  15. 

^  Kansas  Tax  Commission,  Third  Report  to  the  Legislature,  191 2,  pp.  35-45. 

*  Utah  State  Board  of  Equalization,  Report,  1910,  p.  7;  in  1912  the  suggestion 
was  withdrawn  as  it  had  evidently  not  met  with  the  approval  of  the  Board's  con- 
stituents.   Cf.  ibid.,  191 2,  p.  6. 

^  The  Minnesota  special  tax  commission  of  1902  approved  a  central  appoint- 
ment, but  felt  that  such  a  plan  would  arouse  too  much  opposition,  and  it  proposed, 
therefore,  a  county  supervisor  of  assessments,  to  be  locally  elected.  Report,  p.  22. 
The  plan  of  the  Massachusetts  Commission  was  to  make  the  assessor's  office  ap- 
pointive, the  selection  being  made  by  the  mayor  and  council,  with  the  approval  of 
the  state  tax  commissioner,  by  whom  the  assessor  might  be  removed.  Report, 
pp.  21,  22,  83-88.  The  New  Jersey  special  tax  commission  of  1912  also  recom- 
mended the  enlargement  of  the  tax  district  and  the  appointment  of  an  assessor  in 
each  district  by  the  governor.  Report,  pp.  33,  34.  For  a  statement  of  the  Canadian 
practice  and  a  comparison  with  American  conditions  and  results,  cf.  Vineberg, 
Provincial  and  Local  Taxation  in  Canada,  p.  90. 

^  Tax  Commissioner  of  Connecticut,  Report,  1912,  p.  19. 

'  "  Home  rule  "  in  the  general  sense  should  be  distinguished  from  "  local  op- 
tion," a  somewhat  restricted  term  which  has  usually  been  coupled  with  the  project 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       43 

Numerous  issues  are  involved,  such  as  the  liquor  question,  public 
ownership  of  local  utilities,  tax  and  debt  limits,  and  the  exemption 
of  various  forms  of  property  from  local  taxation.  The  writer  has 
no  intention  of  entering  into  this  controversy,  in  which  may  be 
seen  the  perennial  conflict  between  urban  and  rural  interests.  The 
progress  in  the  field  of  taxation  seems  to  indicate,  however,  that 
the  current  is  now  setting  strongly  toward  centralized  administra- 
tion, and  that  it  will  not  be  checked  until  all  matters  of  state-wide 
importance  have  been  swept  into  the  hands  of  the  state  tax  com- 
mission.^ Whether  it  will  carry  away  all  vestiges  of  local  au- 
tonomy in  taxation  depends  somewhat  upon  the  moorings  of  the 
old  traditions  of  self-government,  and  upon  the  success  achieved 
in  establishing  reasonable  standards  of  distinction  between  the 
issues  of  purely  local  and  of  general  concern.  A  constitutional 
amendment  recently  proposed  in  Wisconsin  offers  an  interesting 
solution  of  the  latter  problem.-  It  authorized  localities  to  extend 
the  principle  of  classification  to  various  classes  of  property,  for  the 
purpose  of  local  taxation.  These  exempted  properties  were  to 
continue  to  pay  the  state  tax,  and  more  significantly  still,  in 
so  far  as  there  was  taxation  of  any  property  for  either  state  or 

to  introduce  in  each  locality  certain  experiments  in  social  reform  through  the  use 
of  special  forms  of  taxation  or  the  extension  of  certain  exemptions.  In  this  form 
the  movement  has  met  with  considerable  opposition.  The  National  Tax  Associa- 
tion in  191 1  voted  to  eliminate  from  future  publications  its  tentative  endorsement 
of  local  option,  adopted  in  1907.  Proceedings  of  the  National  Tax  Conference,  1911, 
pp.  425-449.  Oregon  has  been  one  of  the  battle  grounds  in  recent  years,  but  thus 
far  the  efforts  of  the  "  Single  Tax  League  "  have  been  unavailing.  The  bogie  of 
single  tax  stampeded  the  Ohio  Constitutional  Convention  of  191 2  and  prevented 
the  frank  consideration  of  possible  measures  of  tax  reform,  and  the  amendment 
providing  for  the  initiative  and  referendum  expressly  forbade  the  use  of  this  agency 
for  the  introduction  of  the  single  tax.  Cf.  also  H.  Secrist,  "  Home  Rule  in  Taxa- 
tion," Quart.  Jour,  of  Econ.,  xxviii,  p.  490. 

'  Cf.  e.  g.,  the  recommendations  of  the  California  State  Tax  Association  in  its 
bulletin,  The  Problem  of  Taxation  in  California,  Feb.,  1915. 

-  Cf.  T.  S.  Adams,  discussion  at  the  Seattle  Tax  Conference,  Taxation  in  Wash- 
ington, p.  204.  The  Tax  Commission  approved  the  amendment,  which  was  pro- 
posed in  response  to  state  wide  pressure  on  the  subject.  Notwithstanding  the 
apparently  wide  demand  for  the  amendment,  it  was  lost  in  the  greater  wave  of 
reaction  against  central  administration  which  swept  over  the  state  during  the 
recent  political  storm. 


44  THE  STATE  TAX  COMMISSION 

local  purposes,  its  assessment  was  to  remain  under  the  supervision 
of  the  tax  commission.  Local  autonomy  was  thus  preserved  at  the 
vital  point,  the  determination  of  the  basis  of  the  local  burden; 
and  central  administration  was  retained  at  its  vital  point,  the 
control  of  the  distribution  of  the  local  burden  over  the  determined 
base. 


CENTRALIZED  ADMINISTRATION  IN  TAXATION       45 


APPENDIX  TO  CHAPTER  I 

State  Boards  of  Equalization 


State 

Date  of  establishment 

Term 

(years) 

Method  of  selection 

Maine 

1820  Constitution 

Elected  by  Legislature 

New  Hampshire  . 

1878  ch.  73 

2 

Appointed  by  Supreme  Court 

Vermont 

1820  ch.  I 

Committee  of  Legislature 

Massachusetts .  .  . 

1604 

Committee  of  General  Court  * 

Connecticut 

1820  ch.  57 

Ex  officio 

Rhode  Island .... 

New  York 

1859  ch.  312 

3 

State  officials  e.\  officio,  and 
three  members  appointed  by 
the  governor 

New  Jersey 

1891  ch.  114 

5 

Appointed  by  governor 

Pennsylvania .... 

1878  no.  160 

Ex  officio 

Delaware 

None 

Maryland 

u 

Virginia 

u 

West  Virginia. .  .  . 

1882  ch.  32 

Board  of  Public  Works,  ex 
officio 

North  CaroUna. .  . 

1907  ch.  7 

Ex  officio 

South  Carolina. .  . 

1868  no.  22 

5 

Elected  by  the  county  commis- 
sioners 

Georgia 

None 

Florida 

u 
«2 

Alabama ........ 

Mississippi 

u 

Louisiana 

1906  no.  182 

4 

Elected  from  congressional  dis- 
tricts 

Texas 

None 
1907  ch.  71 

Oklahoma 

Ex  officio 

Arkansas 

None 

Tennessee 

1895  ch.  120 

Ex  officio 

Kentucky 

1884  ch.  1336 

4 

Auditor,  and  one  from  each  ap- 
pellate district  appointed  by 
the  governor 

Ohio 

1825  p.  58 

Elected  from  congressional  dis- 
tricts ' 

'  The  date  refers  to  the  earliest  beginning  of  provincial  equalization. 

*  The  title  of  the  state  tax  commission  was  recently  changed  to  State  Board  of  Equalization.  Cf. 
below,  p.  561. 

'  In  those  cases  in  which  no  term  is  given,  but  in  which  the  board  was  elected,  the  term  extended 
only  through  the  current  equalization.    This  was  the  case  in  Ohio,  Indiana,  and  Maine. 


46 


THE  STATE  TAX  COMMISSION 
State  Boards  of  Equalization  —  continued 


State 

Date  of  establishment 

Term 

(years) 

Method  of  selection 

Indiana 

1852  ch.  32 

Elected  from  congressional  dis- 
tricts 

Illinois             .... 

1867  p.  105 

4 

Elected  from  congressional  dis- 
tricts 

Michigan 

1851  no.  106 

Ex  officio 

Wisconsin 

1852 ch. 598 

U                li 

Minnesota 

i860  ch.  I 

u          u 

Iowa 

185 1  Code,  ch.  37 

u          u 

Missouri 

1872  p.  80     . 

u          u 

Kansas 

i86ich.35 

u          u 

Nebraska 

1869  p.  179 

It          a 

North  Dakota..  .  . 

1890  ch.  132 

u          u 

South  Dakota. . .  . 

1891  ch.  14 

u          a 

Montana 

1891  p.  73 

U               ti   I 

Idaho 

1887  Act  of  Feb.  10 

It           «  2 

Wyoming 

1869  ch.  68 

u          u 

Colorado 

1876  Constitution 

u           u 

New  Mexico 

1882  ch.  62 

u          u 

Arizona 

1887  R-  S. sec.  2657 
1896  ch.  129 

u          u 

Utah 

4 

Appointed  by  the  governor 

Nevada 

1891  ch.    56 

County  assessors  ex  officio 

California 

1870  ch.  489 

4 

Elected  from  congressional  dis- 
tricts ^<\^'^1o. 

Oregon 

1891 

Ex  officio 

Washington 

1891  ch.  140 

((             u 

1  Several  western  states  had  provided  boards  of  equalization  under  the  territorial  regime,  a  fact 
which  explains  why  the  state  constitution  is  not  given  as  the  authority  in  all  cases.    Cf.  above,  p.  25. 

2  The  date  of  estabUshment  is  that  on  which  a  regular  board  of  equalization  was  provided  for.  In 
New  Hampshire  provincial  equalization  was  begun  by  a  committee  of  the  legislature  in  I77S-  The 
regular  state  board  of  equalization  was  established  in  1878.  Cf.  Robinson,  History  of  Taxation  in  New 
Hampshire,  pp.  75,  144. 

In  Massachusetts,  the  provincial  equalization  dates  to  1694.  The  state  tax  commissioner  assumed 
this  task  in  1871.    Cf.  Bullock,  op.  cil.,  pp.  91,  92. 

Where  the  method  of  selection  is  given  as  ex  oflScio,  the  board  consisted  of  certain  state  officers 
unless  otherwise  specified,  as  in  the  case  of  Nevada.  No  term  is  shown  for  ex  oflficio  boards,  as  this 
would,  of  course,  coincide  with  the  regular  term  of  such  officials. 


CHAPTER  II 

STATE  BOARDS  OF  EQUALIZATION  AND  ASSESSMENT 

In  this  chapter  and  the  one  following  are  given  brief  accounts  of 
certain  state  boards  of  equalization  and  corporate  assessment. 
While  these  studies  are  not  elaborate  they  will  perhaps  serve  to  il- 
lustrate and  strengthen  the  generalizations  made  in  the  preceding 
chapter  regarding  the  work  of  the  earlier  boards  of  equalization 
and  corporate  assessment. 

The  selection  has  been  confined  to  those  boards  the  published 
proceedings  of  which  were  available  to  the  writer.  The  grouping 
by  chapters  is  roughly  according  to  the  degree  of  progress  that  has 
been  made  in  administrative  reform.  The  boards  described  in  the 
present  chapter  have  either  ceased  to  exist  as  such  {e.  g.,  in  Ohio 
and  New  York),  or  continue  to  exercise  simply  the  old  func- 
tions of  equalization  and  corporate  assessment.  In  the  following 
chapter  the  boards  described  appear  to  be  in  process  of  evolution 
into  regular  state  tax  commissions.  In  one  case,  New  Jersey,  this 
evolution  is  now  (191 6)  virtually  complete. 

State  Boards  of  Equalization  in  Ohio 

The  several  stages  in  the  development  of  centralized  tax  ad- 
ministration which  have  been  outlined  above  ^  have  all  been 
exemplified  in  Ohio.  The  first  stage  was  reached  in  1825  with  the 
provision  of  a  state  board  of  equalization  for  the  periodic  revalua-. 
tions  of  real  estate.  After  the  Civil  War  special  state  boards  of 
equalization  were  created  for  the  review  and  equalization  of  the 
locally  determined  corporate  valuations.  These  boards  assumed 
no  functions  of  corporate  assessment,  and  gave  way  in  the  last 
decade  of  the  nineteenth  century  to  another  series  of  state  boards 
created  to  administer  certain  franchise  and  gross  earnings  taxes. 
None  of  these  boards  produced  satisfactory  results  and  in  1910 

they  were  all  abolished  and  their  functions  transferred  to  the  state 

> 

^  Cf.  above,  pp.  5-7. 


48  THE  STATE  TAX  COMMISSION 

tax  commission.  Since  the  boards  of  assessment  were  more 
directly  the  predecessors  of  the  tax  commission  they  will  be  de- 
scribed in  the  chapter  dealing  with  the  commission  itself/  and 
only  the  various  boards  of  equalization  will  be  dealt  with  here. 
Such  boards  have  been  created  to  equalize  the  periodic  appraisal 
of  real  estate  and  the  annual  assessments  of  railroads  and  banks. 

The  State  Board  of  Equalization  for  Real  Estate 

Previous  to  1825  lands  had  been  entered  on  the  tax  duplicate 
according  to  schedules  of  values  established  by  the  legislature,^ 
a  method  which  had  been  in  use  in  several  older  states.  Reference 
has  already  been  made  to  the  defects  of  this  system  of  assessment 
by  classification,  defects  which  were  becoming  more  apparent 
with  the  growth  of  population,  the  rise  of  cities,  and  the  increasing 
revenue  needs  of  the  state. ^  The  law  of  1825  provided  for  a  valua- 
tion of  all  real  property  and  of  certain  forms  of  personal  property 
upon  actual  view  by  an  assessor  who  was  to  be  appointed  for  each 
county  by  the  court  of  common  pleas.  No  provision  was  then 
made  for  a  reappraisal  of  real  property,  but  revaluations  were 
made,  upon  order  of  the  legislature  in  1835,  1841,  1846,  1853, 
i860,  and  decennially  thereafter  to  1910  when  the  period  was 
shortened  to  four  years.  For  each  of  these  recurring  appraisals 
down  to  1900  special  county  and  city  boards  of  review  were  pro- 
vided, in  addition  to  the  state  board  of  equalization.  The  latter 
was  composed  in  each  instance  of  the  state  auditor,  ex  officio,  and 
one  member  from  each  state  senatorial  district.  The  first  board 
was  chosen  by  the  legislature  on  joint  ballot  but  all  of  the  succeed- 
ing boards  were  elected  by  the  people  on  the  regular  partizan 
basis. 

The  procedure  of  the  board  was  early  settled  upon.  The  very 
simple  rules  of  order  which  had  been  adopted  in  1825  were  re- 
placed in  1835  by  a  more  elaborate  set  which  continued,  with  few 
changes,  to  1900.*    In  the  first  two  equalizations  the  board  at- 

1  Cf.  below,  ch.  15.  -  8  Ohio  Laws,  315,  1809,  contains  such  a  schedule. 

^  Cf.  above,  pp.  20,  21. 

*  Ohio  State  Board  of  Equalization,  Report,  1825-53,  pp.  3,  14,  15;  also  ibid., 
1900,  p.  26.  * 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         49 

tempted  to  select  the  county  which  had  been  assessed  most  nearly 
at  full  value  and  equalize  all  other  counties  on  this  basis.'  Little 
evidence  exists  to  indicate  the  method  of  choosing  the  best- 
assessed  county,  but  the  doubtful  character  of  the  choice  can 
hardly  be  questioned.  The  actual  adjustment  of  valuations  was 
done  in  committee  of  the  whole,  a  procedure  which  favored  at- 
tempts at  "  railroading."  -  Later  boards  began  the  practice  of 
referring  counties  that  presented  difficulties,  or  over  which  for  any 
reason  agreement  was  impossible,  to  special  committees.^  Exten- 
sions of  the  committee  system  continued  and  in  1900  committees 
were  appointed  for  the  following  classes  of  property :  cities  of  the 
first  and  second  grade  of  the  first  class;  other  cities;  villages; 
farm  lands  and  improvements;  non-taxable  property.^  There  is 
no  evidence,  however,  that  these  committees  performed  any 
important  part  of  the  work  of  equalization.  In  fact,  there  was 
legal  authority  for  the  failure  to  equalize  by  classes,  for  the  at- 
torney-general ruled  in  1900  that  coal  lands  might  not  be  equal- 
ized separately.^  An  attempt  was  made  in  1890  to  collect  sales 
data  but  so  far  as  the  records  show  no  practical  results  were 
attained.^ 

Until  1859  each  board  had  been  given  unrestricted  powers  to 
change  the  aggregate  valuation  of  the  state  in  either  direction  and 
by  any  amount.  The  fact  that  successive  boards  had  refused  to 
change  materially  the  local  results  indicates  the  superficiality  of 
their  work  and  of  their  point  of  view.  In  the  reappraisal  of  1835 
lands  were  assessed  at  about  one-fourth  of  true  value,'  while  in 
1844,  three  years  after  the  third  revaluation,  the  state  auditor 
spoke  of  the  necessity  of  adopting  the  principle  of  a  "  cash  valua- 
tion," notwithstanding  the  assessors'  oaths  to  assess  at  full  value.^ 
The  board's  action  in  1841  was  illustrative  of  its  attitude  toward 
any  vigorous  exercise  of  the  powers  which  it  possessed.  The  local 
returns  totalled  $95,630,916,  and  a  resolution  was  adopted  that 
the  equalized  figures  should  not  exceed  $100,000,000.     This  vote 

'  Ohio  State  Board  of  Equalization,  Report,  1825-53,  pp.  4,  18,  19. 
2  Ibid.,  p.  40.  *  Ibid.,  1890,  p.  106. 

'  Ibid.,  p.  54;  also  ibid.,  1890,  p.  74.        '  Bogart,  op.  cit.,  p.  210. 

*  Ibid.,  1900,  p.  4.  *  Ibid.,  p.  211,  note. 

*  Ibid.,  p.  84. 


50  THE  STATE  TAX  COMMISSION 

was  later  rescinded  but  when  the  results  showed  that  the  final 
equalized  figures  would  exceed  $116,000,000  a  flat  reduction  of 
15  per  cent  was  ordered,  thereby  lowering  the  aggregate  to  about 
$99,000,000  and  virtually  attaining  the  intent  of  the  original 
resolution.  This  action  was  vigorously  but  unsuccessfully  op- 
posed by  the  state  auditor  and  ten  members.^  In  1859  the  legisla- 
ture forbade  reduction  of  the  aggregate  bymore  than  $10,000,000.^ 
This  limitation  was  repeated  decennially  until  1889  when  it  was 
changed  to  12J  per  cent.^  In  1900  all  reference  to  the  amount  by 
which  the  local  aggregate  might  be  changed  was  omitted,  and  the 
omission  was  construed  by  the  attorney-general  to  mean  that  all 
power  to  alter  the  total  had  been  withdrawn.'*  As  a  matter  of  fact, 
since  1846  such  privileges  as  the  law  allowed  in  this  respect  had 
not  been  exercised  except  to  reduce  the  valuations,  so  that  in  1900 
there  was  at  least  the  gain  of  preventing  a  repetition  of  past  prac- 
tices. In  1870  the  board  petitioned  the  legislature  to  extend  the 
amount  by  which  the  aggregate  might  be  reduced,  complaining 
that  because  of  the  marked  inequahties  of  assessment  it  would  be 
impossible  "  to  equalize  by  a  uniform  rule  without  leaving  the 
real  estate  at  a  valuation  largely  in  excess  of  its  true  value  in 
money.  "^  The  request  was  ignored  and  an  alternative  course  of 
action  was  supplied  to  later  boards  by  the  attorney-general  who 
rendered  in  1890  the  astonishing  ruling  that  the  board  might 
"  properly  assume  that  the  counties  had  already  been  appraised 
substantially  at  their  true  value  in  money,  and  it  was  the  duty  of 
the  board  to  equahze  these  valuations  or  appraisals  on  this  theory 
and  not  to  establish  new  appraisals  or  new  valuations."  ^  Such  an 
assumption  might  have  been  fair  to  the  Ohio  tax  laws  but  it  was 
certainly  unwarranted  on  any  other  basis.^  Indeed,  it  is  not  clear 
why  the  attorney-general  should  have  considered  equahzation 
necessary  at  all  if  each  county  had  been  appraised  at  full  value. 

1  Ohio  State  Board  of  Equalization,  Report,  1841,  pp.  56,  57. 

2  56  Ohio  Laws,  175. 
'  86  Ohio  Laws,  235. 

*  Ohio  State  Board  of  Equalization,  Report,  1900,  pp.  102-106. 
^  Ibid.,  1870,  pp.  26,  27. 

*  Ibid.,  1890,  p.  50. 

^  Report  of  the  Tax  Commission  of  Ohio,  1893,  p.  46. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        5 1 

It  will  be  seen  from  this  summary  of  the  board's  policies  that  it 
must  have  been  of  very  little  importance  in  furthering  better 
administration  of  the  tax  system.  This  conclusion  is  substan- 
tiated by  the  figures  below,  which  present  the  net  results  of 
equalization  since  the  beginning.  They  indicate  that  the  board's 
influence  was  in  general  regressive  rather  than  in  the  direction  of 
improved  assessment  conditions. 

Summary  of  Valuations  and  Net  Changes  by  the  Ohio  Board  of 
Equalization,  1825-1900  ^ 

Valuation  Valuation  Net  change 

Year  as  returned  as  equalized  —  =  dec. 

18:25 $37,474,494  $37,809,942  $335,447 

183s 67,048,964  73,932,892  6,883,928 

1841 95,630,916  99,154,745  3,523,829 

1846 327,396,916  324,396,004  —3,000,912 

1853 567,005,454  558,725,542  -8,279,892 

i860 633,215,747 

1870 1,146,106,968  1,013,444,506  —32,662,462 

1880 1,102,049,931  1,097,508,830  —  4,450,101 

1890 1,266,826,855  1,140,135,496  —126,693,350 

1900 1,372,857,744  1,372,857,744 

The  chief  reasons  for  the  board's  failure  to  achieve  better  results 
were  the  following.  In  the  first  place  the  assessment  periods  were 
too  long.  Real  values  changed  rapidly  in  the  interim  and  there 
was  no  adequate  machinery  for  registering  this  growth  and  enter- 
ing it  upon  the  tax  rolls.  The  personnel  changed  completely  with 
each  new  board  and  there  was  no  accumulation  of  standards  or 
experience.  In  the  second  place  the  board  was  too  large  and  the 
method  of  selection  was  especially  unfortunate.  The  first  board 
contained  14  members,  but  by  1841  there  were  37  members, 
though  in  1900  the  number  had  fallen  to  2,3  owing  to  a  rearrange- 
ment of  senatorial  districts.  The  choice  of  members  on  the  politi- 
cal basis  made  the  office  a  convenient  one  for  rewarding  those  who 
had  served  the  party  well,^  and  naturally  the  personnel  so  selected 

1  Compiled  from  the  reports  of  the  board.  Complete  figures  for  i860  are  not 
available. 

*  In  1900  brief  biographical  sketches  of  about  27  members  were  published. 
They  were  written  in  a  frankly  laudatory  style  and  made  the  most  of  the  political 
experiences  of  the  several  subjects.  Their  naivete  provides  excellent  illustration 
of  the  criticisms  which  have  been  offered  to  a  personnel  so  chosen.    Of  one  member 


52  THE  STATE  TAX  COMMISSION 

would  be  but  indifferently  prepared  for,  or  interested  in  the  task 
of  equalization.  Finally,  the  powers  of  the  boards  were  so  strictly 
limited  that  but  little  could  have  been  done,  even  by  really 
capable  men,  to  improve  tax  conditions. 

The  special  tax  commission  of  1893  condemned  the  decennial 
equalization  and  recommended  a  complete  reorganization  of  the 
administrative  system,  including  the  establishment  of  a  state  tax 
commission  with  considerable  powers  of  supervision.^  The  com- 
mission attributed  the  inequality  and  injustice  of  the  tax  system 
mainly  to  the  unequal,  unjust,  and  dishonest  assessment  of  prop- 
erty and  the  utter  absence  of  adequate  corrective  or  supervisory 
powers.  This  analysis  failed  to  take  account  of  the  shortcom- 
ings of  the  general  property  tax,  but  it  is  interesting  as  an  example 
of  the  reasoning  then  popular  with  special  commissions,  among 
which  the  idea  of  state  supervision  of  local  assessments  was  being 
worked  out.  The  tax  system  was  thoroughly  investigated  again 
in  1908  by  the  special  commission  reporting  in  that  year,  and  the 
conclusion  was  again  reached  that  the  decennial  appraisal  and 
equalization  were  the  causes  of  the  least  tolerable  of  the  wrongs 
then  borne  by  the  people. ^  As  before,  this  conclusion  neglected 
the  widespread  evasion  and  undervaluation  of  personal  property, 

it  was  said,  "  His  devotion  to  the  interests  of  the  taxpayers  was  partially  rewarded 
when  he  secured  favorable  action  in  reducing  the  tax  values  in  .  .  ."  Similar 
statements  were  made  in  commendation  of  various  members.  Of  one  Democratic 
member  it  was  remarked  that  he  got  all  he  could  for  his  district,  while  another 
minority  member  was  celebrated  for  the  satisfaction  which  he  experienced  at  thwart- 
ing every  efTort  to  advance  the  valuation  of  his  district.  Numerous  references  were 
made  to  the  faithful  service  which  the  members  had  rendered  to  their  parties.  One 
was  characterized  as  a  "  prime  favorite,"  another  had  always  stood  "  in  the  front 
rank  of  the  party's  many  battles,"  a  third  had  never  permitted  private  affairs  to 
cause  him  to  lose  sight  of  public  interests,  while  a  fourth  man  was  "  sufficiently 
interested  in  poHtics  to  warrant  his  neighbors  in  nominating  and  electing  him." 
One  professional  office-holder  had  been  in  office  for  39  years,  and  only  one  man 
confessed  to  a  lack  of  interest  in  politics.  One  member  was  spoken  of  by  the 
frank  biographer  as  an  honest  man.  Ohio  State  Board  of  Equalization,  Report, 
1900,  pp.  159-192. 

1  Report  of  the  Tax  Commission  of  Ohio,  1893,  pp.  44-46,  71-77. 

^  Report  of  the  Tax  Commission,  1908,  p.  20.  Cf.  also  ibid.,  pp.. 56,  57,  for  data 
comparing  sale  value  and  assessed  value  of  real  property  transferred  in  certain 
counties  in  1906.  The  ratios  of  assessed  to  true  value  ranged  from  10.8  per  cent 
to  120.7  per  cent. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         53 

with  which  the  decennial  appraisal  had  nothing  to  do.  The  com- 
mission's criticisms  of  real  estate  assessments  were  sufficiently 
convincing,  however,  and  in  1910  the  whole  process  of  equaliza- 
tion was  transferred  to  the  new  state  tax  commission.  The  results 
of  this  equalization,  and  the  subsequent  changes  in  the  pohcy  of 
assessing  and  equalizing  lands,  will  be  taken  up  in  the  chapter  on 
the  Ohio  Tax  Commission.^ 

Boards  of  Equalization  for  Railroads  and  Banks 

The  reasons  for  the  failure  to  develop  earlier  more  effective 
methods  of  dealing  with  the  problems  of  corporate  assessment  in 
Ohio  are  rather  obscure.-  The  apathy  and  indifference  toward  the 
whole  question  of  tax  reform  prevented  more  thorough  revision 
here,  as  elsewhere;  corporate  interests  were  distinctly  hostile  to 
improvements;  and,  though  centralizing  tendencies  appeared  as 
early  as  the  Civil  War,  an  adequate  system  of  corporate  assess- 
ment was  not  established  until  1910.  The  people  apparently  pre- 
ferred to  temporize  with  the  increasing  demands  for  state  revenue 
by  developing  a  series  of  supplementary  corporation  taxes,  after 
the  manner  of  the  construction  of  crazy  quilts,  rather  than  by 
facing  the  issue  more  squarely. 

The  differentiation  of  special  methods  of  railroad  taxation 
began  in  1862  with  an  act  which  constituted  the  county  auditors 
of  the  counties  through  which  a  railroad  operated  a  board  of 
appraisers  and  assessors  for  that  road.^  The  auditor  of  the  county 
in  which  a  company  had  its  principal  office,  or  (in  case  the  princi- 
pal office  was  in  some  other  state)  the  auditor  of  the  county 
having  the  largest  city  on  the  road,  was  made  president  of  the 
board.  The  procedure  was  carefully  prescribed  by  the  statute. 
In  making  the  valuation  the  boards  were  to  assess,  at  its  true 
value  in  money,  the  personal  property  of  railroads,  which  was  de- 
fined to  include  all  of  the  operating  property  and  the  moneys  and 
credits.  The  term  "personal  property  "  was  later  extended  to  in- 
clude all  undivided  profits,  reserved  or  contingent  funds,  however 
the  same  may  have  been  invested.''    A  second  amendment  in- 

'  See  below,  ch.  15.  '  59  Ohio  Laws,  88. 

*  Cf.  Bogart,  op.  cit.,  ch.  6,  especially  pp.  302-317.      *  60  Ohio  Laws,  1 14. 


54 


THE  STATE  TAX  COMMISSION 


eluded  as  personal  property  locomotives  and  cars  not  belonging  to 
the  company,  but  hired  for  its  use  or  operated  under  its  control  by 
a  sleeping  car  company.  Power  was  given  to  require  railroad 
ofi&cials  to  submit  sworn  returns  relative  to  the  business,  and  these 
statements  might  be  substantiated  by  examination  of  the  books 
and  papers,  authority  for  which  was  also  conferred. 

This  method  of  assessment  was  not  long  allowed  to  remain  free 
from  nominal  central  supervision.  In  1865  the  state  board  of 
equalization  for  railroads  was  created,  consisting  of  the  state 
auditor,  treasurer  and  attorney-general.^  The  commissioner  of 
railroads  and  telegraphs  was  added  in  1867.^  After  hearing  ap- 
peals the  state  board  was  to  equalize  valuations  by  raising  or 
lowering  the  assessment  of  any  individual  road  but  it  was  forbid- 
den to  reduce  the  aggregate  valuation  as  returned  by  the  several 
boards  of  assessment.  In  practice  the  state  board  made  but  few 
changes  and  apparently  confined  its  efforts  to  approximating  as 
closely  as  possible  the  local  returns.  The  following  figures  present 
a  view  of  the  results  since  the  beginning  of  state  equalization :  ^ 

Local  and  Equalized  Valuations  of  Railroads  (000  omitted) 


Year 


Valuation  by 
County 
Boards 


Changes  by  State 
Board 


Additions   Deductions 


Valuation  as 

fixed  by 
State  Board 


Number  of  changes 


Additions  Deductions 


1866 
1871 
1876 
1881 
1886 
1891 
1896 
1901 
1906 
1907 
1908 
1909 


64 

83 

83 

89 

104 

104 

116 

148 

152 

156 

156 


,817 
,545 
=917 
,597 
273 
954 
,984 
,891 
,066 

403 
,096 
783 


78s 
397 
828 

215 

398 

67 

379 


453 
184 
661 

172 

457 

35 

376 

6 


$49,024 

64,877 
84,129 

83,764 

89,316 

104,896 

105,015 
116,894 
148,060 

152,403 
156,096 

156,783 


1  62  Ohio  Laivs,  110.  ^  The  office  was  created  by  64  Ohio  Laws,  iii. 

^  From  Bogart,  op.  cil.,  p.  320.  The  figures  are  found  in  the  annual  reports  of 
the  auditor  of  state.  No  action  was  taken  in  five  other  years  from  1866  to  1909, 
in  addition  to  those  shown. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         55 

The  declining  interest  of  the  state  board  in  the  equalization  is 
clearly  shown.  At  the  same  time  the  annual  meetings  of  the  local 
boards  of  railroad  assessors  were  becoming  mere  junketing  parties 
at  the  expense,  and  for  the  advantage,  of  the  railroads. ^  Because 
of  the  exceedingly  inefficient  assessment  of  general  property  it  is 
impossible  now  to  ascertain  whether  these  figures  represent, 
through  the  years,  an  equitable  basis  for  the  taxation  of  railroads 
as  compared  with  other  property.  The  investigations  of  the 
special  commission  of  1893  indicated,  however,  that  the  railroads 
had  not  been  as  heavily  taxed  as  other  property.  For  example, 
the  taxes  paid  by  the  railroads  for  the  years  1868-75  amounted, 
on  the  average,  to  2.988  per  cent  on  their  gross  earnings.-  The 
increasing  disparity  between  earning  power  and  the  basis  of  taxa- 
tion is  well  illustrated  by  the  following  comparison  of  assessed 
valuation  and  gross  receipts:  ^ 

Comparison  of  Valuation  and  Gross  Receipts  in  1878  and  1892 

Company  Year  Valuation  Gross  receipts 

L.  S.  andM.  S /  1878  $12,996,609  $13,505,139 


1892  12,457,745  22,415,382 

Cleve.  and  Pitts.  ^   ^^^8  S,73i,ooo  2,272,166 


892  4,495,000  3,429,278 

P.  Ft.  W.  and  C /  ^^^^      10,732,001       7,830,000 

I  1892      10,525,948      11,659,142 

In  1891  the  live  stock  of  the  state  was  appraised  at  $84,428,562, 
while  the  railroads  were  assessed  at  less  than  $105,000,000.*  The 
latter  were  estimated  by  the  special  commission  of  1893  to  be  as- 
sessed at  about  25-39  per  cent  of  full  value,  on  the  basis  of  a  6  per 
cent  capitalization  of  the  net  earnings.  If  the  valuation  placed 
upon  the  securities  by  the  investing  public  were  taken  as  the 
basis,  the  Lake  Shore  Railroad  would  have  been  worth  in  1892 
more  than  the  entire  assessment  of  Ohio  railroads  in  that  year.^ 
The  commission  of  1893  concluded  that  railroads  were  not  paying 
their  fair  share  of  taxes,  whether  judged  on  the  basis  of  earnings  or 
on  the  valuation  of  their  properties.®  The  only  practical  remedy 

^  Cf.  Bogart,  op.  cit.,  pp.  325-327,  for  a  description  of  one  annual  session  of  a 
local  board. 

^  Report  of  the  Tax  Commission  of  Ohio,  1893,  p.  52.      ^  Ibid. 

*  Ibid.,  p.  59,  *  Ibid.,  p.  56.  «  Ibid.,  p.  59. 


56  THE  STATE  TAX  COMMISSION 

for  this  situation,  in  the  judgment  of  the  commission,  was  the  im- 
position of  additional  taxes  upon  the  railroads.  Another  possible 
alternative  —  the  reorganization  of  the  whole  assessment  ma- 
chinery for  both  railroads  and  other  property  —  was  indeed 
suggested  in  its  report,  but  for  the  time  being  it  was  entirely  dis- 
regarded and  successive  legislatures  continued  to  experiment 
with  additional  corporation  taxes.  This  policy  produced  another 
administrative  board,  known  as  the  board  of  state  appraisers  and 
assessors,  an  account  of  which  is  given  below  in  Chapter  XV. 

In  1876  the  duty  of  equalizing  the  local  assessments  of  banks 
was  imposed  upon  the  state  officials  who  made  up  the  railroad 
board.  1  These  corporations  were  assessed  by  the  county  auditors 
on  their  capital  stock,  from  the  valuation  of  which  was  deducted 
the  real  estate  locally  assessed.  State  equaHzation  of  these  assess- 
ments was  rendered  necessary,  by  the  increasing  variations  in 
different  counties.-  The  method  used  for  national  banks  was  thus 
described  in  1883:  ^ 

1.  Let  the  sum  of  capital,  surplus  and  undivided  profits  represent  the 
actual  value  of  the  shares. 

2.  Ascertain  the  ratio  of  assessed  value  to  the  above  true  value.  (In 
1883  this  ratio  averaged  68  per  cent.) 

3.  Equalize  as  follows  —  make  no  change  in  all  cases  where  the  ratio  of 
assessed  to  true  value  is  between  65  per  cent  and  75  per  cent.  Lower 
all  ratios  above  75  per  cent  to  that  level,  and  bring  all  ratios  under 
65  per  cent  up  to  that  level,  but  make  no  decrease  or  increase  of  over 
10  per  cent  without  evidence  of  improper  valuation  by  the  county 
auditor. 

The  same  rules  were  used  for  state  banks  except  that  the  range  of 
ratios  was  established  between  55  per  cent  and  65  per  cent.  The 
commission  of  1893  found  that  banks  were  paying  in  taxes  a  larger 
portion  of  their  net  income  than  any  other  class  of  property.* 
General  recognition  of  this  situation  had  perhaps  contributed  to 
the  custom  of  listing  bank  stock  at  60  per  cent  of  the  "  book 
value."  In  1910  the  tax  commission  equalized  banks  on  this 
basis  because  of  the  general  underassessment  of  other  property.* 

'  73  Ohio  Laws,  251.  In  this  capacity  they  were  to  act  as  the  State  Board  of 
Equalization  for  Banks. 

2  Bogart,  op.  cit.,  p.  300.  ^  Auditor  of  State,  Report,  1883,  p.  115. 

*  Report  of  the  Tax  Commission  of  Ohio,  1893,  p.  70. 

*  Ohio  Tax  Commission,  Report,  1910,  p.  6. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         57 

The  New  York  Board  of  State  Assessors 

The  reintroduction  of  the  direct  state  tax  by  New  York  in  1846, 
after  it  had  been  discontinued  for  nearly  twenty  years,  and  its 
rapid  increase  after  1850,  were  the  immediate  causes  for  the  estab- 
hshment  of  the  state  board  of  equahzation  in  1859.'  In  the 
decade  between  1850  and  1859  the  state  tax  had  risen  from  $364,- 
000  to  $5,440,000,  and  the  increasing  gravity  of  the  situation  had 
led  to  an  investigation  and  report  by  a  legislative  committee  early 
in  the  year  1859.-  After  discussing  equalization  by  the  county 
boards  as  a  satisfactory  means  of  distributing  the  local  taxes 
within  the  counties  this  committee  said:  ^ 

But  the  aggregate  or  gross  value  of  the  county  is  returned  to  the  Comp- 
troller and  made  the  basis  of  the  lev>'  for  whatever  taxes  the  exigencies  of 
the  state  may  require. 

The  lower  the  value  of  the  valuation  of  the  county,  the  less  will  be  the 
amount  which  it  will  be  compelled  to  pay  into  the  state  treasury  because 
there  being  no  process  whereby  the  whole  property  can  be  equalized  over 
the  state  as  it  is  in  the  board  of  supervisors,  the  levy  must  be  governed  by 
the  assessors'  valuation;  thus  affording  a  premium  to  the  assessors  for  an 
undervaluation  of  the  property  in  their  respective  towns. 

When  the  state  taxes  were  merely  nominal,  these  inequalities  in  the 
amounts  paid  by  the  several  counties  were  not  so  burdensome  as  to  be 
severely  realized.  .  .  .  And  as  there  is  no  prospect  that  for  years  to  come 
the  state  taxes  can  be  materially  lessened,  it  is  due  to  the  taxpayers  of  the 
state  that  the  present  defective  system  of  equalization  should  be  abandoned. 

Instead  of  abandoning  the  system  of  equalization,  the  legisla- 
ture extended  it  by  the  creation  of  the  state  board  of  equaliza- 
tion.'* This  board  was  composed  of  seven  elective  state  officials 
who  were  already  serving,  ex  officio,  as  commissioners  of  the 
land  office,  and  the  Board  of  State  Assessors  created  by  the  act. 
The  latter  board  was  a  unique  feature  of  the  New  York  plan  for 
a  state  equalization.  No  other  state  has  provided  its  ex  officio 
board  with  a  group  of  advisers  who  were  to  become  experts 
through  the  continuous  study  of  tax  problems,  though  the  prin- 
ciple was  later  followed  in  Indiana  and  Oregon  in  establishing  the 
tax  commissions.    The  state  assessors  were  to  be  appointed  by  the 

1  Cf.  above,  p.  23.  ^  Ibid. 

*  Assembly  Document  47,  1859.  ^  Lau's  of  New  York,  1859,  ch.  312. 


58  THE  STATE  TAX  COMMISSION 

governor  with  the  consent  of  the  senate,  for  a  term  of  three  years. 
Their  chief  duty  was  to  make  regular  visits  to  the  counties  and 
"  to  prepare  a  written  digest  of  such  facts  as  they  might  deem 
most  important  for  aiding  the  state  board  of  equalization  in  the 
discharge  of  their  duties."  The  important  factor  in  New  York 
equalization  was  certain  to  be  the  board  of  state  assessors,  since 
ex  officio  members  have  seldom  been  characterized  by  their 
interest  in  such  duties,  even  when  compelled  to  perform  the 
whole  process  alone.  With  the  provision  of  experts  to  study  the 
tax  problem  it  would  be  a  moral  certainty  that  in  every  respect 
but  legally,  the  board  of  assessors  would  be  the  state  board  of 
equalization. 

The  first  appointments  were  apparently  well  made.  The  board 
set  itself  with  zeal  at  the  task  of  studying  tax  conditions  in  general 
and  the  local  situation  in  particular,  acting  upon  the  conviction  — 
novel  enough  for  the  time  —  that  "  a  perfect  system  of  equaliza- 
tion will  only  be  estabhshed  by  a  careful  examination,  not  only  of 
every  county,  but  of  every  township  therein." ^  The  principal 
method  of  securing  the  data  necessary  for  judging  the  local  results 
was  an  examination  and  classification  of  the  land.  The  sales 
method  was  considered  but  was  regarded  at  that  time  as  unsatis- 
factory, a  justifiable  conclusion  in  view  of  the  inadequate  facilities 
at  their  disposal  for  securing  accurate  data.^  Three  classes  of  farm 
lands  were  distinguished :  ^ 

Class  I.  Counties  in  which  winter  wheat  was  the  staple  crop; 
Class  II.  Counties  adapted  to  the  spring  grains  and  the  dairy; 
Class  III.    Counties  given  over  to  grazing  and  the  dairy. 

In  the  first  two  classes  sub-classes  were  recognized,  in  which  were 
placed  the  counties  producing  these  staples,  but  with  less  desirable 
climate,  less  fertile  soil,  or  less  accessible  location  with  regard  to 
markets.  By  1863  the  entire  state  had  been  covered  and  the  lands 
systematically  classified  by  townships  on  the  basis  of  the  number 
of  "  eighths  "  of  each  class  of  land  contained  in  it.'*  In  addition  to 

1  New  York  Board  of  State  Assessors,  Report,  1859-60,  p.  6. 

'^  Ibid.,  p.  5. 

^  Ibid.,  1860-61,  pp.  3-6. 

*  Ibid.,  1863,  Special  Report  of  Commissioner  T.  C.  Peters. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        59 

this  mass  of  data  relative  to  crop  and  soil  conditions,  the  state 
assessors  compiled  various  other  statistics,  mainly  of  an  agricul- 
tural character.  Thus,  in  the  first  equalization,  the  state  board  of 
equalization  had  before  it  tables  showing  the  acreage  under  culti- 
vation, the  total  and  per  capita  value  of  crops  and  the  cash  value 
of  the  farms  in  each  county,  from  the  state  census  of  1855;  and 
also  comparative  tables  showing  the  local  assessors'  valuations  of 
farms  and  crops  in  1858.'  Other  material  was  prepared  which 
need  not  be  detailed.  The  general  result  of  these  first  equahza- 
tions  was  to  increase  valuations  in  the  counties  which  had  been 
placed  in  the  sub-classes  of  the  first  and  second  groups.  For  this 
rather  surprising  action  two  possible  explanations  appear.  One  is 
that  the  lower  burden  of  local  expenditures  in  the  outlying  counties 
was  less  of  a  check  upon  undervaluation  than  the  higher  expenses 
of  the  fertile  and  populous  counties.  The  other  is,  that  the  ex  of- 
ficio members  of  the  board  of  equaHzation,  coming  from  the  more 
wealthy  and  prosperous  sections  of  the  state,  preferred  to  raise 
the  state  dupHcate  by  increasing  the  sections  in  which  they  were 
not  directly  interested.  The  later  procedure  of  the  board  makes 
the  second  alternative  seem  the  more  reasonable  explanation. - 

Since  equalization  was  from  the  first  confined  to  real  estate 
assessments  the  state  board  was  deprived  of  the  prospect  of 
remedying  one  of  the  most  serious  sources  of  inequality,  the  inade- 
quate assessment  of  personal  property.  This  incongruity  was 
early  observed  by  the  state  assessors  who  declared  the  existing 
system  to  be  "  unequal,  unjust,  and  partial,  placing  the  burden 
upon  real  estate,  while  personal  property  everywhere  escaped 
taxation."  ^  It  is  interesting  to  note  that  the  first  state  assessors 
suggested  the  ehmination  of  the  abuses  of  the  personal  property 
tax  by  the  substitution  therefor  of  a  general  tax  on  incomes, 
which  they  proposed  to  capitalize  at  7  per  cent.  They  assumed 
that  the  problem  of  adequate  assessment  of  income  would  occa- 
sion no  difficulty.* 

*  New  York  Board  of  State  Assessors,  Report,  1859-60,  pp.  6  ff.  Also,  pp.  27- 
29,  Table  B. 

-  Cf.  below,  pp.  64-66. 

'  New  York  Board  of  State  Assessors,  Report,  1859-60,  p.  12. 

*  Ibid.,  i860,  pp.  18-24;  ibid.,  1862,  p.  5. 


6o  THE  STATE  TAX  COMMISSION 

On  the  whole,  the  work  of  the  board  of  state  assessors  in  this 
early  period  must  be  characterized  as  earnest,  extensive,  and  so 
far  as  their  powers  extended,  fairly  successful.  Lacking  the  power 
to  deal  with  personal  property,  they  accomplished  nothing  to 
check  the  escape  of  this  class  of  property  from  taxation;  but  the 
systematic  study  and  classification  of  the  lands  of  the  state  was 
undoubtedly  a  preventive  against  further  inequality  in  appor- 
tioning the  state  tax  upon  real  property. 

No  reports  were  published  by  either  board  during  the  decade 
1863-73,  ^iid  this  period  must  be  passed  over.  There  is  little 
doubt,  however,  that  assessment  conditions  grew  steadily  worse 
during  these  years.  The  subject  received  some  discussion  in  the 
constitutional  convention  of  1867-68  and  the  existing  situation 
was  condemned  by  several  speakers,  but  nothing  was  done  to  alter 
the  fundamental  conditions.^  The  special  tax  commission  of  187 1 
observed  that  local  assessments  were  in  no  way  improved.  In  the 
commission's  first  report  occurs  this  statement:  ^ 

There  cannot  possibly  be  found  a  single  instance  in  the  whole  state, 
unless  possibly  in  the  case  of  certain  unoccupied  lands,  the  property  of  non- 
residents, where  the  law  as  respects  the  valuation  of  real  property  is  fully 
complied  with,  and  where  the  oaths  of  the  assessors  are  not  wholly  incon- 
sistent with  the  exact  truth. 

When  the  reports  of  the  board  of  state  assessors  next  appeared, 
in  1873,  the  personnel  of  the  board  had  entirely  changed  and  new 
methods  of  performing  the  work  had  been  introduced.  The  earlier 
methods  and  results  had  been  entirely  discarded.    Instead  of  the 

^  Cf.  speech  of  M.  I.  Townsend,  Proceedings  of  the  New  York  Constiluiional  Con- 
vention, 1867-68,  iii,  p.  1945,  especially  the  following  oft-quoted  remark:  "  I  insist 
that  a  people  cannot  prosper  whose  officials  either  work  or  tell  lies.  There  is  not 
an  assessment  roll  now  made  out  in  this  slate  that  does  not  both  tell  and  work  lies." 
Cf.  also  iii,  pp.  1987,  2269,  2270. 

^  Report  of  the  Special  Tax  Commission  of  New  York,  1871,  pp.  30,  31.  A  year 
later,  in  its  second  report,  the  commission  repeated  this  conclusion:  "  It  would  be 
difficult,  nay  probably  impossible,  to  find  any  two  contiguous  towns,  cities  or  coun- 
ties of  the  state,  in  which  the  valuations  of  property  approximate  in  any  degree 
to  uniformit)\  So  far  as  the  commissioners  can  ascertain,  the  average  aggregate 
valuation  varies  from  twenty  per  cent  of  actual  value  as  a  minimum  to  fifty  per  cent 
as  a  maximum;  with  a  probable  total  average  for  the  whole  state  of  not  in  excess 
of  40  per  cent."    Second  Report,  1872,  p.  10. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         6 1 

elaborate  grading  of  lands  according  to  a  fixed  schedule,  which 
was  the  characteristic  feature  of  the  earlier  equalization,  the 
"  sales  method  "  had  come  into  prominence  as  the  means  of  ascer- 
taining the  quality  of  the  local  assessors'  work.  The  plan  of 
obtaining  the  data  upon  which  to  calculate  the  ratios,  and  the 
other  materials  which  were  relied  upon,  were  thus  described:  ^ 

No  attention  was  given  to  the  equalizations  of  earlier  years.  Meeting 
the  representatives  of  the  towns  and  cities,  we  have  endeavored  to  ascer- 
tain the  percentage  at  which  real  estate  was  assessed,  based  upon  sales  made 
in  the  usual  manner;  the  percentage  on  personal  property  of  the  sum  given 
the  assessor;  also  the  percentage  of  banking  capital,  the  assessed  value  of 
railroads  per  mile,  as  well  as  the  full  value  of  the  farm  land  per  acre.  From 
these  statements  ...  we  have  ascertained  the  percentage  at  which  real 
estate  was  assessed  on  its  fair  value. 

In  the  same  manner,  from  the  ratios  of  each  county,  an  average  rate 
per  cent  was  obtained  for  the  state.  Counties  have  been  increased  or  re- 
duced in  the  assessed  value  of  real  estate  as  they  were  found  below  or  above 
the  state  ratio. 

In  the  course  of  these  inquiries  every  county  was  visited  in  1873 
and  about  1300  persons  examined,  though  in  that  year  no  sworn 
testimony  was  taken.^  On  account  of  criticisms  the  oath  was 
administered  in  the  investigations  of  subsequent  years.  The 
admission  of  hearsay  evidence  impaired  greatly  the  value  of  ratios 
compiled  for  the  purpose  of  that  careful  adjustment  among  coun- 
ties which  is  necessary  in  equalization.  The  trend  of  the  ratios  as 
a  whole  indicates  a  widespread  belief  that  the  work  of  the  local 
officials  was  of  a  very  low  order.  The  figures  ranged  from  24  per 
cent  to  50  per  cent,  and  26  out  of  60  counties  were  given  ratios 
below  40  per  cent.^  With  so  low  a  ratio  of  assessed  to  true  values 
in  1873  as  these  percentages  indicated,  there  ensued  in  the  next 
few  years,  according  to  the  state  assessors,  the  rather  remarkable 
phenomenon  of  a  steady  approach  of  the  level  of  assessments 
toward  full  value.  This  change  was  not  the  result  of  improved 
local  performance  but  of  the  decline  in  farm  values  after  the  panic 
of  1873.  Accepting  this  decline  as  a  fact,  the  state  assessors  were 
able  to  say  in  1876:  * 

'  New  York  Board  of  State  Assessors,  Report,  1873,  p.  11. 

^  Ibid.,  1873,  p.  5.  '  The  figures  are  published  in  ibid.,  1874,  p.  4. 

*  Ibid.,  1876,  p.  3. 


62  THE  STATE  TAX  COMMISSION 

...  in  some  counties  the  local  assessors  have  in  whole  or  in  part  com- 
plied with  the  requirements  of  the  law,  and  assessed  all  real  estate  as  they 
would  appraise  the  same  in  payment  of  a  just  debt  due  from  a  solvent 
debtor,  and  all  personal  property  at  its  full  and  true  value. 

The  last  part  of  this  statement  was  clearly  an  exaggeration,  as  it  is 
impossible  that  all  personal  property  had  even  been  listed,  to  say 
nothing  of  having  been  valued  according  to  law.  Entirely  too 
great  virtue  is  ascribed  to  the  inertia  of  the  local  assessors,  who 
apparently  stood  as  fast  when  real  values  were  receding  toward 
them  as  when  these  were  advancing  far  beyond  their  position. 
Some  assessors  were  found  who  had  been  in  office  for  upwards  of 
twenty  years  and  who  had  not  changed  their  figures  materially  in 
that  time.  Many  of  them  had  never  seen  the  tax  laws  which 
could  not  then  be  obtained  without  purchasing  the  revised 
statutes.^ 

The  work  of  such  a  board  could  not  long  continue  without  en- 
countering the  opposition  of  either  the  urban  or  the  rural  interests 
of  the  state.  As  it  happened,  a  majority  of  the  board  were  "  up- 
state "  men  and  the  annual  equalizations  uniformly  resulted  in 
material  additions  to  the  valuation  of  New  York  City.  The  tax 
department  of  that  city  waged  incessant  war  against  the  findings 
of  the  state  board  and  spent  considerable  energy  in  seeking  to 
overthrow  the  results  of  state  equahzation.  An  especial  effort 
was  made  in  1874  and  a  review  of  the  criticisms  then  made  will 
bring  out  some  of  the  alleged  defects  in  the  work  of  the  state 
assessors.-  The  chief  points  of  attack  and  defense  may  be  stated 
thus. 

The  principal  accusation  was  that  the  increases  made  were  un- 
fair and  imposed  an  unjust  tax  burden  upon  New  York  City.  To 
this  the  board  replied  that  according  to  its  ratios  the  city  was 
about  2|  per  cent  below  the  state  average,  and  the  method  of 
equalization  required  that  it  be  brought  up  to  this  average. 
Such   close   calculation   meant  a    very  definite   reliance   upon 

1  New  York  Board  of  State  Assessors,  Report,  1873,  p.  5. 

*  The  city's  case  is  found  in  a  Report  of  the  Committee  appointed  to  attend  the 
Meeting  of  the  State  Board  of  Equalization,  presented  to  the  Board  of  Aldermen, 
October  14,  1875.  The  board  of  assessors  presented  their  case  in  their  Report  for 
187s,  pp.  12,13. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         63 

the  accuracy  of  the  ratios  and  it  has  already  been  shown  to  be 
quite  doubtful  if  sufficiently  high  standards  of  acceptable  material 
had  been  maintained  in  the  collection  of  data  to  warrant  this 
dependence.  1  Therefore,  while  the  city  officials  produced  no  evi- 
dence to  prove  any  other  percentage  more  accurate  than  the  one 
actually  assigned  to  New  York,  the  justice  of  the  particular  basis 
upon  which  the  board  took  its  action  is  open  to  question. 

It  was  contended,  further,  that  the  state  assessors  used  for  the 
counties  ratios  higher  than  those  sworn  to  by  the  local  assessors, 
while  in  New  York  City  the  ratio  established  was  lower  than  that 
alleged  to  have  been  used  by  the  city  tax  commissioners.  To  this 
it  was  replied  that  the  decline  in  farm  values  had  produced  a 
higher  level  of  actual  percentages  than  those  claimed  by  the  local 
assessors,  since  many  of  the  latter  had  been  assessing  upon  certain 
traditional  percentages  of  full  value  when,  in  fact,  the  decline  of 
land  values  had  raised  the  level  of  the  ratios  actually  used.  Defi- 
nite evidence  of  the  extent  of  this  change  in  true  valuations  is 
wanting  in  the  official  reports.  The  tendency  towards  lower  real 
values  was  probably  in  operation  at  this  time  but  the  ability  of  the 
state  assessors  to  ascertain  the  necessary  correction  in  local  asses- 
sors' stated  ratios  may  be  seriously  questioned.  On  the  other 
hand,  as  to  the  ratios  established  for  New  York  City,  the  assessors 
cited  the  evidence  of  recorded  sales,  the  data  from  investigations 
among  men  acquainted  with  real  estate  values,  and  the  arguments 
of  the  city's  attorneys  in  a  recent  tax  case.  Whatever  may  have 
been  the  facts  concerning  the  board's  knowledge  of  conditions  in 
the  remainder  of  the  state,  it  seems  that  a  fairly  careful  study  had 
been  made  of  the  assessments  in  New  York  City  before  reaching 
the  decision. 

Various  other  minor  charges  were  made,  all  of  which  reflected 
the  bitterness  of  the  dispute  which  was  continually  waged  be- 
tween the  rural  and  the  urban  interests  in  the  state.  The  state 
assessors  had  not  presented  a  unanimous  report  but  had  divided 
along  the  traditional  lines  of  conflict,  the  two  members  from 
Seneca  and  Cayuga  counties  advising  and  voting  for  the  increase, 
and  the  member  from  Kings  county  urging  acceptance  of  the  New 

'  Cf.  above,  p.  61. 


64  THE  STATE  TAX  COMMISSION 

York  figures.^  There  was  undoubtedly  prejudice  on  both  sides, 
emphatic  disclaimers  to  the  contrary  notwithstanding.  The  dis- 
pute serves  to  emphasize  the  general  need  of  rigidly  impartial 
study  of  facts  and  of  adequate  equipment  in  the  state  tax  depart- 
ment to  make  an  investigation  that  will  be  absolutely  convincing. 
Furthermore,  it  reveals  the  sore  need  of  greater  supervisory 
authority  over  the  local  assessment  process  as  well  as  of  certain 
vital  reforms  in  the  whole  tax  system.  Not  until  these  reforms 
have  come  can  such  episodes,  with  the  resultant  bitterness  which 
they  engender,  be  even  approximately  eradicated.^ 

The  state  assessors'  interest  in  equalization  began  to  decline  in 
the  later  eighties,  and  inasmuch  as  they  had  always  been  the  only 
members  of  the  state  board  of  equalization  to  take  any  substan- 
tial interest  in  the  subject,  equalization  of  the  state  tax  settled 
more  and  more  into  a  formal  routine.^  The  collection  of  sales  data 
and  the  compilation  of  ratios  practically  ceased.  The  ratios  pre- 
pared in  1893  were  the  only  percentages  published  from  1874  to 
1896,  though  percentages  were  calculated  in  1894  and  1895.  The 
method  of  compilation  used  in  1894  was  to  select  certain  tracts  or 
parcels  of  property  in  each  city  or  town  visited,  appraise  these,  and 
compare  the  appraised  with  the  assessed  value.  These  were  not 
actual  sales,  it  should  be  noted;  and,  furthermore,  even  though 
the  method  of  checking  up  the  local  assessor's  judgment  by 
"  sampling  "  his  work  is  in  theory  sound,  the  number  of  parcels 
used  was  in  but  few  cases  sufficient  to  serve  as  an  adequate  test  of 
the  local  valuations.  For  example,  in  Niagara  city,  only  twelve 
properties  were  examined;  in  Lockport,  eleven  properties  were 
appraised  and  six  sales  collected.  In  the  rural  towns  there  were 
sometimes  eight  or  ten  inspections  made,  possibly  enough  for  the 
smaller  towns,  but  in  others  not  more  than  two  to  four  samples 
were  taken. ^  In  1895  the  equalization  was  said  to  be  based  upon 
the  percentages  of  assessed  to  true  value,  data  for  which  had 
been  collected  as  in  former  years.     Yet  the  counties  which  were 

1  Cf.  Report  of  the  Committee,  pp.  6,  7. 

^  Cf.  below,  pp.  187,  192,  for  evidence  of  this  conflict  in  recent  years. 
'  Cf.  equalization  data  in  Reports,  1884-89.     The  volume  of  changes  is  decreas- 
ing.   The  same  counties  are  changed  each  year  and  by  about  the  same  amounts. 
*  New  York  Board  of  State  Assessors,  Report,  1894,  p.  11. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         65 

increased  were,  with  one  exception,  those  that  had  been  raised  in 
1889,  and  the  amounts  added  were  practically  the  same  as  in  the 
earlier  year,  though  the  aggregate  valuation  of  the  state  had 
naturally  advanced. ^  The  percentages  which  resulted  from  ma- 
terials collected  in  such  a  hasty  and  superficial  manner  cannot  be 
regarded  as  a  fair  basis  for  a  just  equalization  among  the  counties. 
The  board  was  not  unfamihar  with  the  dangers  of  improper  data 
and  in  1886,  on  the  occasion  of  refuting  some  figures  which  had 
been  prepared  by  New  York  City  in  an  appeal  case,  it  stated 
certain  of  these  dangers  very  clearly:  ^ 

1.  The  sale  might  include  personal  property  which  would  invalidate  it  for 
the  ratio. 

2.  The  stated  consideration  might  be  nominal,  or  purposely  fictitious. 

3.  Partition  sales  should  be  rejected. 

4.  Foreclosures,  gifts,  trades  and  forced  sales  of  all  kinds  should  be  ex- 
cluded. 

5.  Sales  to  relatives  were  also  untrustworthy. 

Though  these  cautions  were  appreciated  by  the  state  assessors 
of  the  middle  eighties,  it  seems  impossible  that  they  could  have 
been  observed  by  the  men  who  occupied  that  office  in  1893  when 
the  second  set  of  ratios  was  published.  This  doubt  is  confirmed 
by  the  marked  changes  which  occurred  in  the  ratios  in  the 
twenty  years.  In  the  figures  for  1874  no  counties  were  found  to  be 
assessed  above  50  per  cent  and  many  were  below  40  per  cent;  but 
in  those  prepared  in  1894,  no  county  was  rated  below  50  per  cent, 
while  thirty-one  out  of  sixty  counties  were  given  70  per  cent  or 
above.  The  board  still  believed  that  the  real  value  of  land  was 
declining;  but  no  other  evidence  was  cited  in  confirmation,  and 
the  census  figures  showing  the  average  value  of  farm  lands  in  New 
York  indicate  so  slight  a  decrease  from  1870  to  1890  that  it  would 
have  been  unappreciable  by  the  crude  methods  used  by  the  state 
assessors  for  measuring  changes  in  valuations.^ 

^  New  York  Board  of  State  Assessors,  Report,  1895,  p.  15.  Cf.  also  the  criti- 
cisms made  by  Fairlie,  The  Centralization  of  Administration  in  New  York,  pp.  164- 
166. 

^  New  York  Board  of  State  Assessors,  Report,  1886,  p.  27.  Cf.  below,  ch.  8, 
especially  pp.  239,  240,  for  review  of  Professor  Adams'  discussion  of  the  cautions 
to  be  observed  in  the  collection  of  sales  data. 

'  The  average  value  per  acre  of  farm  lands  and  buildings  from  1850  to  1890 


66  THE  STATE  TAX  COMMISSION 

In  conclusion,  it  must  be  said  that  by  the  nineties  or  even 
earlier,  the  usefulness  of  the  board  of  state  assessors  had  about 
come  to  an  end.  Its  interest  in  its  work  had  been  steadily  dimin- 
ishing, due  in  part  no  doubt  to  the  entirely  inadequate  powers 
possessed  by  it.  The  equalization  process  had  always  been  in- 
complete because  of  the  exclusion  of  personal  property.  The 
changes  in  real  estate  assessments  were  becoming  more  and  more 
formal.  They  had  been  confined  for  years  to  a  rather  small  group 
of  counties  and  the  amounts  added  were  so  nearly  identical  from 
year  to  year  as  to  suggest  the  possibility,  or  even  probability, 
that  they  had  been  copied,  with  minor  alterations,  from  the 
figures  of  preceding  years.  At  any  rate,  the  successive  equahza- 
tion  tables  show  very  distinctly  and  unmistakably  the  influence 
of  the  board's  action  in  preceding  years,  and  it  is  obvious  from  the 
reports  of  the  state  assessors  that  they  were  becoming  less  active 
in  the  study  of  tax  conditions  over  the  state.  The  time  was  ripe 
for  a  change  and  the  special  tax  commission  of  1893  advocated 
many  important  reforms.^  Certain  of  these  recommendations 
were  adopted  in  1896,  and  the  further  history  of  centralized 
control  of  assessments  in  New  York  will  be  taken  up  below  in 
Chapter  VI. 

The  Illinois  State  Board  op  Equalization 

The  first  step  toward  state  control  over  the  administration  of 
the  general  property  tax  in  Ilhnois  was  taken  in  1867  by  the  crea- 
tion of  the  state  board  of  equalization.^  Under  the  original  act 
this  board  was  composed  of  the  state  auditor  and  one  member 

were  as  follows:    1850,  $29.00;  i860,  $38.30;    1870,  $45.89  (gold);    1880,  $44.41; 
1890,  $44.08.  Twelfth  Census,  v,  pp.  695-697. 

1  The  situation  was  well  summed  up  by  the  Counsel  appointed  to  revise  the 
Tax  Laws,  in  its  report  of  1893:  "  No  power  exists  at  present  in  any  body  of  the 
government  to  supervise  in  any  way  the  action  of  local  assessors,  which  is  fre- 
quently arbitrary  and  unjust."  Report  of  Counsel  appointed  to  revise  the  Tax  Laws, 
1893,  p.  18. 

2  The  Report  of  the  Special  Tax  Commission  of  Illinois,  i,  1910,  has  covered  the 
work  of  the  board  of  equaUzation,  and  this  account  is  therefore  somewhat  ab- 
breviated.   Cf.  also  Fairlie,  "  Taxation  in  Illinois,"  Amer.  Econ.  Rev.,  i,  pp.  519- 

534- 

The  board  was  established  by  Laws  of  Illinois,  1867,  p.  105. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        67 

from  each  senatorial  district,  appointed  by  the  governor  for  a  term 
of  two  years.  Thereafter  the  members  were  to  be  elected  for  four 
years.  In  1872  the  basis  of  selection  was  made  the  congressional 
district,  thereby  reducing  the  membership  from  26  to  20,  but  the 
growth  of  population  had  advanced  the  number  to  26  by  1904. 
Salaries  were  paid  on  the  per  diem  basis  previous  to  1908,  but 
beginning  with  that  year  each  member  has  received  $1000  per 
annum  with  mileage  and  stationery  allowances.  The  only  duty 
originally  required  of  the  board  was  the  equalization  of  local 
assessments,  but  with  the  rise  of  problems  of  corporate  taxation, 
its  jurisdiction  was  extended  to  include  the  administration  of 
these  taxes. 

In  performing  the  equalization,  the  board  was  empowered  to 
raise  or  lower  the  valuation  of  any  county,  but  was  not  allowed  to 
reduce  the  aggregate  valuation  of  the  state;  nor  could  this  aggre- 
gate be  increased  by  more  than  one  per  cent.  In  1898  this  restric- 
tion was  modified  and  permission  was  given  to  vary  the  total 
assessment  by  as  much  as  10  per  cent  in  either  direction.  Since 
1869  the  board  has  been  required  to  equalize  separately  farm 
lands,  town  and  city  lots,  personal  property  and  railroad  property. 

The  procedure  of  equaHzation  was  early  settled  upon  and  but 
few  changes  have  since  been  made  in  it.  Each  class  of  property 
has  been  assigned  to  a  committee  which  has  reported  to  a  general 
committee  on  equalization;  and  by  the  latter  a  general  report  has 
been  submitted  to  the  board  for  final  action.  Though  these  com- 
mittee reports  are  open  to  amendment,  the  custom  has  long  since 
become  established  of  adopting  them  without  alteration  and 
usually  without  discussion.  In  1913  the  rule  providing  for  debate 
was  suspended  in  order  to  vote  through  without  discussion  the 
report  of  a  certain  committee.^  This  practice  renders  very  diffi- 
cult any  coordination  of  the  work  of  the  different  committees, 
even  if  the  board  were  seriously  inclined  to  seek  a  harmonious 
relation  of  assessed  values  among  the  several  classes  of  property. 
In  1868  there  was  a  vigorous  protest  by  the  minority  of  the  com- 
mittee on  personal  property,  but  the  grievance  related  more  to  the 
majority's  construction  of  the  law  than  to  the  principle  of  proper 
^  Cf.  below,  pp.  71,  72. 


68  THE  STATE  TAX  COMMISSION 

equalization  between  this  and  other  classes  of  property.^  The  dis- 
favor with  which  a  recent  protest  against  the  board's  indifference 
was  received  is  referred  to  later.-  In  general,  both  the  board  as  a 
whole  and  the  several  committees  have  dodged  the  responsibility 
for  painstaking  equalization.  Some  instances  of  the  results  of  this 
carelessness  will  be  briefly  described. 

The  first  of  these  occurred  early  in  the  board's  career.  The 
committee  on  farm  lands  in  1868  classified  the  counties  into  fifteen 
groups  with  a  rigid  scale  of  average  values  per  acre,  but  no  data 
were  published  in  the  annual  report  to  indicate  the  basis  of  classi- 
fication.^ In  1870  values  were  assigned  to  these  groups  ranging 
from  $8.20  per  acre  in  the  highest,  to  $2.60  in  the  lowest  group, 
through  gradations  of  40  cents  per  acre.  This  arbitrary  method 
not  only  diminished  the  value  of  the  equalization  process;  it 
became  the  source  of  considerable  injustice.  For  instance,  in 
1868  no  county  in  the  lowest  group  had  been  assessed,  on  the 
average,  as  low  as  $2.60  per  acre.  The  average  assessed  values  for 
the  five  counties  in  this  group  were,  respectively,  $2.98,  $3.70, 
$3.95,  $4.56,  and  $5.87.  The  injustice  of  lumping  together  land 
assessments  having  a  range  of  $2.98  to  $5.87  is  apparent,  while 
the  policy  of  dehberately  encouraging  undervaluation  has  sorely 
plagued  the  state  to  this  day. 

This  poHcy  was  distinctly  antagonistic  to  improvement  in  the 
assessment  of  personal  property  also.^  Although  personalty  has 
usually  been  assessed  on  a  more  inadequate  and  depreciated  basis 
than  real  estate,  it  has  been  the  common  practice  of  the  Illinois 
board  of  equalization  to  make  still  further  reductions  in  the  aggre- 
gate of  personal  property  for  the  purpose  of  making  compensatory 
increases  upon  lands  or  lots.  With  equal  inconsistency,  the  assess- 
ments of  live  stock  have  frequently  been  increased,  although  the 
aggregate  of  personal  property  was  reduced.  This  change  only 
intensified  the  inequaHty  of  tax  burden,  since  five  stock  has 

1  Illinois  State  Board  of  Equalization,  Report,  1868,  pp.  63-65. 

2  Cf.  below,  pp.  71,  72,  note. 

'  Illinois  State  Board  of  Equalization,i?e/»ari,i868,p.66.     /fc/rf.,  1870, pp.  54-56. 

*  Cf.  Report  of  the  Special  Tax  Commission  of  Illinois,  19 10,  p.  65,  for  an  ac- 
count of  the  practice  in  1900  and  1909.  In  both  of  these  years  the  actual  equaliza- 
tion was  made  in  absolute  disregard  of  the  board's  own  classification. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         69 

usually  been  among  the  best  assessed  classes  of  all  tangible  per- 
sonalty. Further,  the  board  has  made  very  little  use  of  the  one 
per  cent  limit  for  the  purpose  of  raising  valuations,  but  has  kept 
the  aggregate  as  nearly  unchanged  as  possible.  The  figures  for 
1876  and  1886  will  serve  to  illustrate  the  point.* 

Assessed  and  Equalized  Assessments  of  Property,  1876  and  1886 
(000  omitted) 

1876  i886 

Class  of  property  Assessed  Equalized  Assessed  Equalized 

Farm  lands $582,394         $488,484  $371,94°         $35i.373 

Lots 218,055  259,028  303,835  226,364 

Personalty 212,893  205,908  147,998  146,458 

Totals $953,342  $953,420  $723,773  $724,195 

In  both  of  these  years  the  committees  on  farm  lands  and  per- 
sonal property  are  seen  in  their  favorite  role  of  reducing  the 
assessed  valuations  of  their  respective  classes  of  property.  It  is 
impossible  now  to  ascertain  by  what  means  the  decision  was 
reached  that  the  equalization  of  real  estate  in  1876  required  a  re- 
duction of  approximately  $34,000,000  from  lands  and  an  addition 
of  about  $41,000,000  to  lots.  But  granting  the  necessity  of  these 
changes  in  the  interest  of  proper  equalization,  the  use  of  the  one 
per  cent  increase  in  the  aggregate  valuation  would  have  per- 
mitted this  adjustment  without  changing  the  aggregate  assess- 
ment of  personal  property  at  all.  Similar  doubts  may  be  felt  as  to 
the  propriety  of  the  methods  of  reaching  a  hke  decision  with 
regard  to  real  estate  ten  years  later.  In  this  case  the  reduction  of 
the  personalty  assessment  was  less  than  in  1876,  but  the  influence 
of  the  board's  policy  may  be  seen  in  the  declining  assessment  of 
this  class.  The  decrease  of  the  total  assessment  of  property  in  this 
decade  is  eloquent  testimony  of  the  inefficiency  of  the  whole 
assessment  process  in  Illinois.  The  special  tax  commission  of  1886 
spoke  as  follows  concerning  the  results  of  the  state  equalization:  ^ 

Equalization  would  seem  to  be  plainly  necessary.  But  how  does  it  work 
under  the  present  system  ?  The  State  board  deals  with  the  aggregate  as- 
sessment of  lands,  lots,  and  personal  property  —  three  classes  —  and  adds 

^  Figures  taken  from  the  reports  of  the  board. 

*  Report  of  the  Special  Tax  Commission  of  Illinois,  1886,  p.  3. 


yo  THE  STATE  TAX  COMMISSION 

to  or  subtracts  from  each  class,  a  fixed  and  arbitrary  percentage;  thus 
raising  or  lowering  all  property  in  each  class  in  equal  proportion.  Thus, 
upon  pieces  of  property  already  assessed  at  a  large  fraction  of  their  value, 
frequently  an  increase  of  valuation  is  made,  which  carries  them  above  their 
market  value. 

The  board  was  in  the  grip  of  the  system,  to  the  vicious  tenden- 
cies of  which  it  had  never  offered  strong  resistance.  The  lo  per 
cent  hmit  on  changes  in  either  direction,  authorized  in  1898,  gave 
greater  freedom  but  its  waning  interest  in  equaHzation  prevented 
any  use  of  this  freedom  except  to  make  further  reductions.  In 
1899  there  was  no  change  in  the  aggregate  of  personal  property; 
lands  were  reduced  by  $1,454,000,  and  lots  $19,520,000.^  In  the 
following  year  personal  property  was  reduced  $10,613,000,  and 
lands  $34,022,000  while  lots  were  increased  $2,083,000.^  These 
erratic  changes  are  illustrative  of  the  board's  action  in  recent 
years.  It  is  seen  again  in  its  favorite  role  of  lowering  the  aggre- 
gate valuation.^  The  suit  brought  by  the  Chicago  Teachers' 
Federation  forced  more  effective  action  for  a  time;  but  it  was  the 
final  galvanic  shock  to  a  body  from  which  the  capacity  to  per- 
form its  vital  function  had  departed,  for  in  1906  it  was  possible 
for  the  committee  on  personal  property  to  pass  the  following 
resolution: '' 

We  have  considered  the  relative  value  of  personal  property  in  each  county 
and  it  is  the  opinion  and  judgment  of  this  committee  that  the  personal 
property  in  the  various  counties  in  the  state  should  remain  as  assessed  by 
the  local  assessors  and  county  boards  of  review,  believing  said  values  to  be 
just  and  equitable  as  between  the  several  counties  of  the  state. 

We  therefore  recommend  that  no  additions  to  or  deductions  from  the 
assessed  value  of  personal  property  be  made,  in  order  that  an  equalization 
by  the  board  may  be  maintained. 

This  resolution  has  become  the  established  formula  of  the  com- 
mittee on  personal  property.  Under  its  cover  the  board  has  made 
no  effort  to  equalize  personal  property,  not  hesitating  to  add  to 
the  offense  of  inaction  its  solemn  assertion  of  belief  that  the 

1  Illinois  State  Board  of  Equalization,  Report,  1899,  pp.  37  ff. 
^  Ibid.,  1900,  pp.  82  ff. 

'  Complete  figures,  1868-1913,  are  given  by  Fairlie,  Report  on  Revenue  and 
Financial  Administration ,  1914,  pp.  25,  26. 

*  Illinois  State  Board  of  Equalization,  Report,  1906,  p.  13. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        J I 

local  personalty  valuations  were  just  and  equitable  between  the 
counties.  An  incident  of  the  session  of  1906  will  illustrate 
further  the  board's  methods.  A  resolution  was  introduced  to 
the  effect  that  personal  property  had  been  valued  for  taxa- 
tion at  70  per  cent  of  its  true  value.  After  amendments  to  sub- 
stitute 100  per  cent,  or  90  per  cent,  or  to  lay  on  the  table,  had 
been  defeated,  the  original  motion  was  carried,  approving  the 
70  per  cent  basis.^  While  the  equalization  process  has  never 
been  one  of  scientific  inquiry  into  assessment  conditions,  it  is 
here  shown  to  have  become  the  most  ordinary  form  of  poHtical 
juggUng  to  reach  a  compromise  acceptable  to  the  majority. 

The  conclusions  of  the  Commission  of  19 10  may  be  summarized 
as  follows :  ^ 

1.  No  attempt  had  been  made  to  study  actual  conditions. 

2.  There  was  no  assurance  that  the  members  elected  possessed  knowledge 
of  conditions  over  a  county  or  a  congressional  district. 

3.  The  board  had  failed  to  follow  its  own  standards  since  1900.' 

4.  Members  had  worked  for  low  assessments  in  their  own  districts,  and 
almost  never  made  increases  in  their  home  counties. 

The  board's  behavior  in  1913  again  illustrates  the  sort  of 
political  jugghng  to  which  it  has  descended.  The  only  addition 
on  lands  was  a  30  per  cent  increase  in  Lake  county,  which  was 
represented  by  a  member  who  had  made  some  effort  to  secure 
better  methods  of  procedure  and  more  effective  results.   In  order 

^  Illinois  State  Board  of  Equalization,  Report,  1906,  p.  ii. 

-  Report  of  the  Special  Tax  Commission  of  Illinois,  1910,  pp.  63-65. 

^  The  general  equalization  committee  and  the  full  board  have  been  very  un- 
willing to  accept  radical  recommendations  from  the  subcommittees.  In  1900  the 
committee  on  personal  property  reported  increases  in  56  counties,  ranging  as  high 
as  40  per  cent  in  some  cases;  and  decreases  in  42  counties,  one  of  24  per  cent. 
Out  of  this  mass  of  corrections,  the  only  advance  which  survived  was  a  16  per 
cent  advance  in  Cook  county.  All  other  counties  but  eight  were  reduced  15  per 
cent.  Similar  treatment  has  been  accorded  the  recommendations  of  the  com- 
mittee on  real  estate,  and  the  recent  inactivity  of  these  committees  may  be  attrib- 
uted, in  some  degree,  to  the  great  unpopularity  of  reports  which  have  displayed 
some  efifort  to  make  a  real  equalization. 

The  Special  Tax  Commission  of  1910  concluded  that  "  the  membership  of  the 
board,  its  elective  character,  its  inadequate  powers,  and  the  short  time  which  is 
allotted  to  it  to  perform  its  duties  prevent  it,  and  would  prevent  any  similar  board 
from  becoming  an  efl5cient  agent  in  the  administration  of  the  tax  laws."  Message 
of  Governor  Deneen,  1910,  p.  10. 


72  THE  STATE  TAX  COMMISSION 

to  prevent  discussion  of  this  action,  the  rule  was  suspended  which 
required  that  all  committee  reports  lie  open  to  debate  and 
amendment  for  forty-eight  hours  before  going  to  the  general 
committee  on  equalization.^ 

Centralized  Administration  of  Corporation  Taxes  ^ 

Railroads.  —  The  use  of  special  administrative  methods  for  the 
taxation  of  corporations  in  Illinois  began  with  the  revenue  law  of 
1872,  according  to  which  the  assessment  of  the  "  railroad  track  " 
and  "  rolling  stock  "  of  railroads  was  transferred  from  the  local 
assessors  to  the  state  board  of  equalization.  To  the  latter  was 
given  also  the  duty  of  assessing  the  "  corporate  excess  "  of  rail- 
road and  other  corporations  when  such  excess  was  found  to  exist. 
All  other  corporate  real  estate  and  personal  property  were  left 
within  the  local  jurisdiction.^  Corporations  were  required  to 
make  returns  of  their  property  and  capitaHzation  to  the  state 

^  The  member  in  question  gave  a  lengthy  newspaper  interview  on  his  experi- 
ences, from  which  the  following  description  of  committee  procedure  is  taken: 
"  Take  the  meetings  of  the  committees  as  an  illustration  of  the  farcicalities.  Dur- 
ing the  entire  three  months'  session  of  the  board  which  met  two  or  three  days  a 
week  from  Aug.  12  until  Nov.  20,  no  one  of  three  committees  that  I  particularly 
watched  was  in  session  more  than  five  hours. 

"  As  a  member  of  the  personal  property  and  town  and  city  lots  committees  I 
can  testify  that  they  were  called  together  by  the  chairman  only  three  times  during 
the  three  months'  session  for  one  hour  to  an  hour  and  a  half  each  time.  In  the 
personal  property  committee  the  chairman  glanced  over  the  figures  for  each  county 
and  said,  county  by  county:  '  Oh,  I  guess  that  's  all  right;  what  do  you  say,  boys?  ' 

"  Some  one  would  reply,  '  Move  it  be  accepted  as  sent  in  '  and  it  was  carried  at 
once. 

"  At  times  some  one  would  say,  '  I  wonder  why  that  county  is  so  low  in  per- 
sonal property?'    And  some  one  would  answer,  '  Oh,  the  floods  this  spring.' 

"  Another  coimty  would  be  called  and  some  one  would  say,  '  I  wonder  why 
that  county  is  so  high?  '    '  Oh,  the  floods  did  n't  touch  it,'  some  would  remark. 

"  'All  right,  let  it  go,'  the  chairman  would  remark. 

"  Some  one  would  say  occasionally,  '  We  'd  better  take  more  time;  go  slowly 
and  meet  this  afternoon.'  'No,  sir-ee,'  some  one  would  reply,  'I  want  to  get  home 
this  afternoon,  let 's  go  ahead,  we  can't  change  any  of  it  anyway.' " 

Remarks  of  H.  T.  Nightingale,  in  Chicago  Herald,  Jan.  2,  1914.  Cf.  also  Illi- 
nois State  Board  of  Equalization,  Report,  1913,  p.  16.  A  similar  suspension  of  the 
rule  requiring  opportunity  for  inspection  occurred  in  the  case  of  the  reports  from 
the  committees  on  railroads  and  capital  stock.    Cf.  ibid.,  p.  94. 

*  Cf.  Moore,  Taxation  of  Corporations  other  than  Railroads  since  1872. 

^  Laws  of  Illinois,  1872,  p.  i.  The  corporate  excess  was  to  be  taken  as  the  excess 
of  the  value  of  the  capital  stock  over  the  valuation  of  the  tangible  property. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        73 

auditor  by  whom  these  data  were  laid  before  the  state  board.  The 
latter  was  not  confined  to  the  statements  made  by  these  com- 
panies, but  might  make  further  investigations  though  it  had  no 
power  to  compel  the  appearance  of  witnesses  or  the  production  of 
books  or  papers.  The  valuations  when  determined  were  certified 
back  to  the  local  districts  for  the  application  of  the  local  rates. 

The  railroad  assessment  for  1873  was  more  than  five  times  the 
total  returned  by  the  local  assessors  in  1872,  advancing  from 
$25,568,784  as  equalized,  to  $133,520,633.  This  immensely  in- 
creased amount  was  composed  of  $59,317,408  on  track  and  rolling 
stock,  and  $64,611,071  on  capital  stock.  The  figures  speedily 
decHned  after  1873,  ^^^  to  large  reductions  of  40  per  cent  and  50 
per  cent  in  equahzation,  and  by  1876  the  total  assessment  of  rail- 
roads was  only  $44,329,489,  of  which  $10,106,258  was  the  corpo- 
rate excess  levied  on  capital  stock.  No  assessments  of  railroad 
capital  stock  appear  to  have  been  made  again  until  1900,  and  the 
maximum  assessment  thereafter  was  $3,313,415  in  1914.^  The 
assessment  of  physical  property  reached  in  1878  the  low  level  of 
$40,461,865,  or  less  than  5  per  cent  of  the  total  assessed  valuation 
of  the  state.  Until  1890  the  railroad  assessments  increased  faster 
than  those  of  other  property,  comprising  in  the  latter  year  9.4  per 
cent  of  the  total  assessment  of  property.  In  the  next  twenty  years 
the  relative  assessment  of  railroad  and  other  property  was  practi- 
cally constant,  the  former  rising  in  1900  as  high  as  ii.i  per  cent 
of  the  total,  but  decHning  by  1909  to  9.6  per  cent.  In  1914  it 
was  less  than  8  per  cent  of  the  total.  All  of  the  evidence  goes  to 
show  that  railroads  in  IlHnois  are  being  taxed  less  heavily  than 
other  property,  and  that  there  are  considerable  differences  among 
the  railroads  themselves.  The  decUning  proportion  of  railroad  to 
total  assessment  has  already  been  noted.  The  percentage  of  rail- 
road taxes  to  gross  earnings  has  declined  from  4.75  per  cent  in 
1890  to  less  than  3.5  per  cent  in  191 1.  Compared  with  net  earn- 
ings the  railroad  taxes  declined  from  13  per  cent  in  1890  to  11  per 
cent  in  191 1,  while  for  the  country  as  a  whole,  the  ratio  of  taxes  to 

*  Complete  figures,  1873-1914,  are  given  by  Fairlie,  Report  on  Revenue  and 
Finance  Administration,  1Q14. 


74  TEE  STATE  TAX  COMMISSION 

gross  earnings  rose  from  8  per  cent  in  1902  to  16  per  cent  in  1914.^ 
Wide  variations  occur  also  in  the  ratio  of  taxes  to  earnings.  In 
a  few  cases  the  gross  earnings  have  been  less  than  the  taxes  paid 
in  Illinois.  On  the  other  hand,  one  important  system  has  been 
paying  httle  more  than  2  per  cent  of  gross  earnings  in  taxes, 
while  some  other  roads  have  paid  not  more  than  6  per  cent  to  7 
per  cent  of  net  earnings  in  taxes.^ 

The  revenue  law  of  1872  made  all  domestic  corporations  liable 
to  taxation  on  that  part  of  the  value  of  their  capital  stock  in  ex- 
cess of  the  value  of  physical  property  owned,  commonly  called 
the  "  corporate  excess."  This  margin  of  taxable  value  was  to  be 
determined  by  the  state  board  of  equalization.  In  1873  the  board 
assessed  a  total  of  $21,898,451,  of  which  $6,325,216  was  upon  the 
stocks  of  public  service  corporations  other  than  railroads.^  The 
assessments  steadily  declined  to  1880  when  only  29  corporations 
were  assessed  for  a  total  of  $2,191,408.  The  aggregate  assess- 
ment fluctuated  from  $2,000,000  to  about  $7,000,000  until  1901 
when  the  activity  of  the  Chicago  Teachers'  Federation  forced  an 
increase  to  $21,477,943,  levied  on  749  corporations.  But  this 
stimulus  was  soon  spent,  and,  though  the  board's  net  caught 
1988  corporations  in  1902,  the  average  assessment  was  $11,421, 
as  against  an  average  of  $28,675  in  1901.  The  total  assessment 
thereafter  declined  until  in  1907  it  was  only  $10,608,000.  By 
1909,  with  a  basis  of  33^  per  cent  of  full  value,  the  figure  was 
$35,394,441,  assessed  upon  1168  companies.  In  1913,  708 
corporations  were  assessed  for  an  aggregate  of  $29,373,194, 
or  an  average  of  $41,487.* 

The  earher  fluctuations  may  be  explained  in  part  by  changes  in 
the  manner  of  equalization  by  the  state  board,  and  also  by  the 
partial  abandonment  of  the  policy  of  administrative  centraliza- 
tion which  the  state  assessment  involved.^  In  1875  companies 
organized  for  manufacturing,  printing  or  publishing  newspapers, 

1  Fairlie,  Report  on  Revenue  and  Finance  Administration,  p.  29,  and  note. 

2  Ibid. 

^  Figures  are  given  in  the  Report  of  the  Special  Tax  Commission  of  Illinois,  1910, 
p.  224. 

''  Illinois  State  Board  of  Equalization,  Report,  1913,  pp.  24-43. 

^  Report  of  the  Special  Tax  Commission  of  Illinois,  1910,  pp.  85,  86. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        75 

and  stock-breeding  were  restored  to  the  jurisdiction  of  the  local 
assessors.  In  1893  companies  for  mining  and  selling  coal  were 
withdrawn  from  the  state  assessment,  and  in  1905  the  privilege 
was  accorded  to  corporations  organized  for  mercantile  purposes.^ 
The  legislature  further  attempted  in  1905  to  exempt  from  all  taxa- 
tion the  stocks  of  these  classes  of  companies  withdrawn  from  cen- 
tral assessment,  but  this  was  rejected  by  the  courts  under  the 
uniform  rule  of  the  constitution.^  The  court  held  that  the  stocks 
which  were  removed  from  the  jurisdiction  of  the  state  board  were 
still  assessable  by  the  local  assessors,  but  in  fact  the  laxity  of  the 
local  assessment  amounts  virtually  to  exemption  for  these  com- 
panies.^ The  same  may  even  be  said  for  many  of  the  companies 
still  centrally  assessed,  as  more  than  three-fourths  of  the  total 
corporate  excess  is  regularly  levied  on  a  small  group  of  pubKc 
service  corporations  in  Cook  county.  In  1909  the  total  assess- 
ment outside  of  Cook  county  was  $950,000,  and  of  this  $753,000 
was  upon  local  public  service  companies.  In  this  year  only  15 
companies  were  assessed  for  $100,000  or  above,  and  only  95  for 
as  much  as  $10,000.  In  other  words,  the  assessment  of  corporate 
excess,  like  the  equalization  process,  has  become  a  formal  routine, 
the  results  of  which  are  modified  only  by  the  political  exigencies  of 
the  case.  The  board  has  long  outlived  its  usefulness,  and  the  time 
is  overripe  for  a  change. 

The  need  of  reform  is  illustrated  by  the  outcome  of  the  Chicago 
Teachers'  Federation  case.  This  suit  was  brought  by  the  Federa- 
tion to  compel  a  better  assessment  of  the  corporate  excess  of  the 
Chicago  pubhc  utilities.  After  proceedings  had  been  instituted 
the  board  changed  its  rules  and  assessed  a  few  companies  for  small 
amounts  of  corporate  excess.  The  state  courts  authorized  the 
issue  of  mandamus  enforcing  the  proper  assessment  of  these  com- 
panies for  1 90 1,  and  the  figures  for  that  year  show  a  marked  in- 
crease over  preceding  years.  The  collection  of  the  increased  taxes 
was  enjoined  by  the  United  States  Circuit  Court  on  the  ground 
that  the  assessment  had  been  made  under  duress;   and  further- 

*  Zjiws  of  Illinois,  1875,  p.  35;   ibid.,  1893,  p.  172;  ibid.,  1905,  p.  353. 

*  236  Illinois,  86. 

'  Fairlie,  Report  on  Revenue  and  Finance  Administration,  p.  31. 


76  THE  STATE  TAX  COMMISSION 

more,  not  on  the  proper  basis,  which  should  have  been  the  capi- 
tahzed  net  earnings  instead  of  on  the  value  of  the  stocks  and 
bonds  minus  the  valuation  of  the  tangible  property.^  The  United 
States  Supreme  Court  sustained  the  lower  federal  court,  but  on 
the  ground  that  the  corporations  involved  had  been  assessed  on 
the  full  value  of  their  capital  stock  while  other  corporations  had 
been  assessed  on  a  65  per  cent  basis.^  After  seven  years  of  Htiga- 
tion  the  efforts  to  secure  the  adequate  taxation  of  some  of  the 
most  powerful  and  productive  corporations  in  the  state  were 
frustrated  by  the  backward  character  of  the  tax  system  and  the 
results  of  judicial  review. 

Enough  has  been  said,  perhaps,  to  demonstrate  the  utter  failure 
of  the  Ilhnois  state  board  of  equahzation  in  both  of  the  adminis- 
trative functions  assigned  to  it.  The  special  commission  of  1910 
recommended  the  aboHtion  of  the  state  board  of  equalization  and 
the  substitution  therefor  of  a  state  tax  commission,  modelled 
along  the  Hues  of  recent  administrative  development.^  No 
further  progress  has  been  made,  as  bills  for  the  creation  of  a  tax 
commission  were  defeated  in  191 1  and  1913.  The  agitation  was 
again  renewed  in  191 5  and  grand  jury  indictments  were  returned 
against  prominent  citizens  of  Chicago  for  making  improper  tax 
returns.  This  method  of  creating  sentiment  against  the  general 
property  tax  is  not  conspicuously  successful,  though  it  should 
prove  the  utter  futility  of  that  system.  The  proposal  for  a  tax 
commission  was  renewed  by  the  Committee  on  Revenue  and 
Finance  Administration,  in  1914,  with  the  broader  suggestion 
that  a  state  finance  commission,  with  powers  over  both  revenues 
and  expenditures,  would  afford  a  more  complete  remedy  for  the 
present  situation.^ 

1  Slate  Board  of  Equalization  v.  People,  191  Illinois,  529.  Also  Chicago  Union 
Traction  Company  v.  State  Board  of  Equalization,  112  Fed.  Rep.  557. 

2  112  Fed.  Rep.  607.  Cf.  Haig,  History  of  the  General  Property  Tax  in  Illinois, 
pp.  206-209. 

'  A  state  tax  commission  had  been  proposed  by  the  Illinois  Revenue  Commis- 
sion of  1886,  Report,  p.  13.  Cf.  Report  of  the  Special  Tax  Commission  of  Illinois, 
1910,  p.  201.  In  1913  the  board  of  equalization  appointed  a  committee  to  formu- 
late suggestions  for  tax  reform.  The  only  change  which  the  committee  could  think 
of  was  that  the  board  of  equalization  be  made  a  perpetual  body  with  longer  tenure 
of  office  for  members.    Report,  1913,  p.  21. 

*  Fairlie,  Report  on  Revemte  and  Finance  Administration,  1914. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         yj 

The  Utah  State  Board  of  Equalization 

History  has  been  repeating  itself  in  very  interesting  fashion  in 
the  fiscal  experiences  of  the  newer  states.  Without  exception  the 
more  recently  formed  commonwealths  adopted  the  general  prop- 
erty tax  as  the  chief  source  of  state  and  local  revenue,  and  their 
briefer  experience  has  been  an  epitome  of  the  longer  history  of 
this  tax  in  older  sections.  In  primitive  frontier  societies  this 
system  of  taxation  found  congenial  soil ;  it  was  fairly  well  adapted 
to  such  simple  economic  and  social  conditions  as  there  prevailed 
and  was  perhaps  fairly  equitable  in  its  burden.  But  such  condi- 
tions rapidly  disappeared  with  the  passing  of  the  frontier,  and  the 
general  property  tax  speedily  degenerated  after  the  opening  up  of 
these  newer  sections  to  closer  contact  with  the  East.  Many  of 
these  features  are  illustrated  in  Utah,  the  experiences  of  which  will 
be  briefly  described. 

The  first  legislature  established  a  state  board  of  equalization  in 
1896.*  There  had  been  a  territorial  board  of  equalization  but  no 
data  are  available  concerning  the  results  of  its  work.  The  new 
state  board  was  composed  of  four  persons  appointed  for  four  years 
by  the  governor  with  the  consent  of  the  senate.  The  chief  func- 
tions of  the  board  were  the  annual  equalization  of  the  local  assess- 
ments, some  very  slight  supervisory  duties,  and  the  assessment  of 
certain  inter-county  public  service  corporations. 

Equalization  and  Supervision.  —  The  authority,  possessed  by 
the  Utah  board,  to  make  unlimited  changes  in  the  county  totals 
and  to  reconvene  at  will  the  county  boards  of  equalization, 
offered  in  theory  some  opportunity  to  correct  the  errors  of  the 
local  officials.  In  practice,  however,  this  has  not  been  achieved. 
The  standards  of  assessment  have  steadily  declined  and  little  has 
been  accomplished  toward  a  more  equitable  distribution  of  the 
tax  burden.  The  figures  below  present  a  view  of  the  results  since 
1896:2 

'  Laws  of  Utah,  1896,  ch.  129. 

2  From  the  biennial  reports  of  the  board  of  equalization.  TTie  large  Increase  of 
1916  was  due  to  a  tax  limit  Jaw  passed  in  1915.    Report,  1916,  p.  72. 


78 


THE  STATE  TAX  COMMISSION 


Assessments  or  Real  and 

Personal  Property  (millions) 

Year 

Real 
estate 

Im- 
prove- 
ments 

Live 

stock 

Mer- 
chandise, 
etc. 

Machi- 
nery, 
tools 

Moneys, 
credits 

Other 
personal 

Total 
personal 

1896 

1900 

1904 

1908 

I9I2 

I9I4 

I9I6 

$48.6 
43-8 
49.0 

55-5 
66.1 

73-3 
186.3 

$20.4 
22.2 
27-3 
34-9 
43-3 
45-6 

101.4 

$6.0 
8.6 
8.2 
10.2 
10.8 
11.6 
28.2 

$4-4 
5-1 
7.6 

lo.s 

II.O 
lO.O 

26.0 

$2.3 
2.8 

4.8 
7.6 

6.8 
6.9 
17-3 

$8.0 

3-5 
5-0 
4-5 
7-5 

lO.O 

17.6 

$2.2 

3-7 
6.0 
6.7 
7-4 
8.1 

23-3 

$22.9 
23-7 
31.6 
39-5 
43-5 
48.7 

112,4 

The  bulk  of  the  assessments  are  seen  to  consist  of  tangible  prop- 
erty. While  the  wealth  of  the  state  is  still  largely  of  this  character, 
it  is  difficult  to  believe  that  the  total  of  moneys  and  credits  was 
larger  in  1896  than  in  any  subsequent  year  to  1913.^  County  re- 
corders are  required  to  transmit  to  the  county  assessors  lists  of 
mortgages  held  by  residents  of  the  several  counties,^  but  this  pro- 
vision has  apparently  had  little  effect  on  the  volume  of  mortgages 
assessed.  The  special  tax  commission  of  1913  remarked  that  the 
state  would  "  lose  no  appreciable  part  of  its  income  by  abandon- 
ing all  attempt  to  collect  taxes  on  this  class  of  property."  ^  The 
courts  have  held  that  the  board  might  not  increase  all  of  the  per- 
sonal property  of  a  county,  including  moneys.*  The  board's 
supervisory  powers  have  never  been  adequate  to  induce  in  the 
local  officials  a  proper  observance  of  the  tax  laws;  and  a  weak  and 
decentralized  administrative  organization  would  naturally  fail  to 
cope  effectively  with  that  most  difficult  problem  presented  by  the 
general  property  tax  —  the  proper  assessment  of  intangible 
wealth.  Conferences  of  assessors  have  been  held,^  the  counties 
have  been  visited  by  members  of  the  board  of  equalization,  and  a 
persistent  campaign  has  been  waged  for  the  compulsory  use  of 
land  maps  by  the  local  assessors.    By  1904  these  maps  were  re- 

1  The  total  bank  deposits  on  June  14,  1912,  were  $52,665,959. 
^  Revised  Statutes  of  Utah,  1898,  §  2531. 
'  Report  of  the  Special  Tax  Commission  of  Utah,  1913,  p.  21. 
*  State  ex  rel.  Cunningham  et  al.  v.  Thomas  et  al.,  State  Board  of  Equalization, 
Oct.  2,  1897.    In  Edition  of  Tax  Laws,  i8g8,  pp.  65  ff. 

^  Utah  State  Board  of  Equalization,  Report,  1901-02,  pp.  7,  8. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         79 

ported  to  be  in  general  use.*  The  most  important  recourse  open  to 
the  board  to  correct  the  results  of  the  local  assessment  has  been 
reconvening  the  county  boards  of  equahzation.  This  power  has 
not  been  consistently  exercised,  in  view  of  the  well-known 
inconstancy  of  the  assessors.  Thus,  in  1896,  advances  of  15 
per  cent  to  25  per  cent  were  ordered  in  11  counties,^  and  in 
1898  an  increase  of  5  per  cent  was  ordered  on  all  the  property 
except  money  in  1 1  counties.^  Whether  these  were  the  same  coun- 
ties that  had  been  increased  in  1896  is  not  indicated.  A  period  of 
comparative  inactivity  followed  to  1903  when  advances  were 
again  made  in  11  counties.^  In  the  following  year  one  county 
was  increased  and  the  opinion  was  expressed  that  all  property 
had  been  "uniformly  and  equally  assessed."  '"  The  board  has 
frequently  recommended  full  value  assessment  and  tax  rate  Kmita- 
tion  but  its  latest  actions  indicate  some  reluctance  to  make  prog- 
ress to  that  end.  In  1913  the  levy  for  state  tax  on  the  aggregate 
valuation  was  insufficient  to  meet  the  appropriations  for  that 
year.  The  board  hesitated  to  advance  either  levy  or  valuation  on 
account  of  the  dissatisfaction  that  would  follow,  and  trusted  to 
the  inheritance  tax  and  other  sources  of  state  income.  In 
1914  the  board  was  compelled  to  add  some  $3,000,000  to  the 
assessed  valuation.  This  increase  was  said  to  have  been  based 
upon  careful  investigation,  but  no  details  were  given  as  to  the 
data  collected  or  the  character  of  the  changes.  The  maximum 
levy  allowed  by  the  constitution  on  the  equaHzed  valuation  was 
not  sufficient  to  cover  the  appropriations  made  in  1913.® 

The  earher  optimism  concerning  equality  of  assessment  was  not 
shared  by  the  members  of  the  board  in  later  years  and  in  1908  the 
appointment  of  a  special  tax  commission  for  the  investigation  of 
the  tax  system  was  officially  recommended.  Two  years  later 
assessments  were  declared  to  be  far  from  uniform  and  it  was  pro- 
posed that  the  assessors  should  be  appointed.^  Such  an  advanced 

1  Utah  State  Board  of  Equalization,  Report,  1903-04,  p.  4.  Previous  to  the 
adoption  of  these  maps  there  was  no  assurance  that  all  of  the  property  had  been 
listed.    Cf.  ihid.,  1901-02,  pp.  7,  8. 

2  Ibid.,  1896,  pp.  5,  6.  *  Ibid.,  p.  5. 

'  Ibid.,  1897-98,  p.  4.  *  Ibid.,  1913-14,  pp.  62,  63. 

*  Ibid.,  1903-04,  p.  5.  '  Ibid.,  1909-10,  p.  6. 


8o  THE  STATE  TAX  COMMISSION 

suggestion  was  hastily  recanted  and  the  people  were  assured  that 
there  was  no  intention  of  depriving  them  of  self-government.^ 
The  principle  of  appointment  was  approved  by  the  special  tax 
commission  which  reported  in  1913,  though  the  recommenda- 
tion of  that  body  extended  no  further  than  to  advise  close 
central  control  over  a  locally  chosen  official.^  State  equah- 
zation,  as  conducted  by  the  present  board,  was  declared  to  be  a 
farce.^  Wide  diifferences  were  found  in  the  basis  of  assessment  in 
different  count;^es.  Assessments  of  section  property  ranged  from 
18  per  cent  to  56  per  cent  of  true  value,  while  town  lots  varied 
from  21  per  cent  to  55  per  cent  of  true  value.^  The  remedy  pro- 
posed by  the  special  tax  commission  was  a  strong  administrative 
centraHzation  of  the  whole  tax  system  in  the  hands  of  the  board 
of  equalization  which  was  to  be  reorganized  along  the  lines  of  the 
modem  tax  commission.^  The  problem  of  assessing  moneys  and 
credits  was  admitted  to  be  incapable  of  solution  under  the  general 
property  tax  and  classification  was  recommended  with  a  rate  of 
three  to  five  mills.® 

The  Administration  of  Corporation  Taxes.  —  The  first  revenue 
act  of  the  new  state  provided  that  the  property  and  franchises  of 
railroads,  street  railroads,  telegraph  and  telephone  companies 
operating  in  more  than  one  county  should  be  assessed  by  the 
state  board  of  equahzation.^  The  basis  of  this  assessment  was 
to  be  a  sworn  statement  by  the  president  or  other  competent 
ofl&cial,  returning  all  of  the  property,  real,  personal  or  otherwise, 
owned  in  the  state,  including  the  mileage  in  each  county.  These 
returns  were  also  to  include  such  other  information  as  the  board 
might  require,  though  in  fact  there  is  little  evidence  that  the 
board's  inquiries  were  very  widely  extended.  In  1899  central 
assessment  was  introduced  for  intra-county  telephone  and  rail- 
road companies,  and  the  net  proceeds  of  mines,  but  a  court 
decision  of  1903  withdrew  these  properties  from  the  central  juris- 

^  Utah  State  Board  of  Equalization,  Report,  191x^12,  p.  6. 

*  Report  of  the  Special  Tax  Commission  of  Utah,  1913,  p.  14. 
'  Ibid.,  p.  10.  *  Ibid.,  pp.  15-17. 

*  Ibid.,  pp.  9,  10. 

*  Ibid.,  pp.  21-23. 

^  Laws  of  Utah,  1896,  p.  439. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        8 1 

diction.    A  constitutional  amendment  placed  the  net  proceeds 
of  mines  under  the  authority  of  the  state  board  in  1907.^ 

The  board  has  been  more  successful  in  administering  the  cor- 
poration taxes  than  in  its  efforts  at  equalization,  though  its 
methods  in  the  assessment  of  railroads  were  not  approved  by  the 
special  tax  commission.  The  latter  found  that  the  assessments 
had  been  confined  too  closely  to  a  physical  valuation  basis;  and 
that  the  board  had  sought  to  reach  a  portion  of  the  difference  be- 
tween physical  and  actual  value  by  assessing  this  difference  sepa- 
rately as  the  franchise  value.  This  attempted  separation  was 
declared  to  be  "inaccurate,  misleading,  and  unscientific";  but 
on  the  whole  the  commission  expressed  itself  as  satisfied  with  the 
results  of  corporate  taxation  under  existing  laws,  whereby  ap- 
proximately one-third  of  the  cost  of  reproduction  had  been 
attained.'  The  good  was  not  permitted  to  defeat  the  best,  how- 
ever, and  recommendations  were  offered  for  an  extension  of  the 
board's  authority  to  require  returns  on  the  following  subjects: ' 

(a)  the  actual  cash  value  of  the  tangible  property; 

(b)  the  average  market  price  of  the  stocks  and  bonds  during  the  year; 

(c)  the  total  amounts  paid  in  dividends,  and  to  the  surplus,  reserve  and 
sinking  funds; 

(d)  the  gross  and  net  earnings. 

The  special  commission's  proposals  were  in  Hne  with  its  advo- 
cacy of  greater  administrative  centralization.  One  exception  to 
this  position  is  found  in  its  attitude  on  the  assessment  of  the  net 
proceeds  of  mines,  which  it  believed  could  be  more  satisfactorily 
and  effectively  assessed  by  the  county  assessors,  especially  if  the 
work  could  be  done  under  the  direction  and  supervision  of  the 
state  board.  This  anomalous  recommendation  was  sustained  by 
the  following  curious  reasoning.  The  present  law  requires  the 
board  to  assess  improvements  and  machinery  as  well  as  net 
proceeds  of  mines.  For  this  purpose  the  owners  are  required 
to  report  on  the  value  of  their  improvements  and  machinery, 
and  the  county  assessors  are  required  to  visit  the  mines  and 

^  Utah  State  Board  of  Equalization,  Report,  1906,  p.  8;  ibid.,  1908,  p.  7.  Con- 
siilution  of  Utah,  Art.  XIII,  §  4. 

*  Report  of  the  Special  Tax  Commission  of  Utah,  pp.  20-63.     '  Ibid.,  pp.  34-37. 


82 


THE  STATE  TAX  COMMISSION 


make  an  independent  report  on  the  value  of  this  property. 
Since  the  reports  of  owners  and  assessors  often  vary  widely,  and 
inasmuch  as  the  county  assessor  is  required  by  law  to  visit  the 
mines  anyway,  the  commission  concluded  that  it  would  be  more 
satisfactory  to  allow  them  to  perform  the  whole  assessment.  The 
experiences  of  the  past  seem  to  condemn  this  conclusion.  The 
following  table  shows  the  comparative  results  of  local  and  state 
assessment  since  1896:  ^ 

Assessment  of  Net  Proceeds  and  Machinery  of  Mines  (mtllions) 


Local  assessments 

By  State  Board  of  equalization 

Year 

Valuation 

Year 

Net  proceeds 

Improve- 
ments and 
machinery 

Total 

1896    

$2.0 
1-7 
1-3 
1.8 

3-7 
4.8 

3-2 

1900 

1901 

1902 

1903 

1907 

1008 

$2.4 
3-1 
4-3 
4-5 

7-3 
5-3 
4.2 

7-5 
9.6 
21.6 

$2.8 
3-6 
3-9 
8.3 

l8o7 

1898 

i8qq 

1904 

TOO? 

IQ06 

1909 

I912 

$7.0 

II.O 

1914 

1916 

13-6 
29.9 

While  it  is  not  held  that  the  board's  figures  represent  the  full 
value  of  the  net  proceeds,  it  seems  evident  that  the  central  assess- 
ment has  succeeded  better  than  the  local  assessment  in  sustaining 
the  level  of  valuation.  It  is  natural  that  the  progress  of  the  mining 
industry  should  result  in  an  advance  in  the  total ;  but  it  is  signifi- 
cant that  in  both  periods  of  local  assessment  the  tendency  of  the 
valuations  was  downward,  while  in  both  periods  of  central  assess- 
ment the  opposite  tendency  has  prevailed.  Notwithstanding  this 
gain  under  state  administration  there  is  need  of  further  improve- 
ment, especially  in  the  faciHties  for  grading  the  mines  according 
to  quantity  and  quality  of  output  and  the  conditions  of  opera- 

1  Compiled  from  the  biennial  reports  of  the  Board  of  Equalization.  Cf.  J.  J. 
Thomas,  "  Taxation  of  Mines  in  Utah  and  Nevada,"  Proceedings  of  the  National 
Tax  Conference,  1908,  pp.  431,  440. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         83 

tion.  The  board  recommends  the  establishment  of  a  bullion 
commission,  following  the  practice  of  Nevada.' 

In  the  assessment  of  car  companies  the  board  has  made  valu- 
able gains.  The  state  treasurer  was  originally  designated  as 
collector  of  these  taxes;  but  the  neglect  of  dehnquencies  led  to 
the  appointment,  in  1900,  of  the  secretary  of  the  state  board  as 
the  collector  of  these  taxes,  with  marked  improvement  in  the 
collection.2 

Enough  has  been  presented,  perhaps,  to  indicate  the  scope  of 
the  activities  of  the  Utah  board  of  equalization,  and  to  reveal  the 
weaknesses  of  decentralized  administration  in  that  state.  They 
are  the  characteristic  difficulties  —  equaHzation  has  become  a 
farce,  weak  advisory  supervision  has  availed  little,  and  there  is 
much  room  for  improvement  in  the  conditions  of  corporate  assess- 
ment. The  board  has  been  growing  less  active  in  recent  years. 
On  the  other  hand,  it  has  accomplished  some  valuable  results.  It 
has  compelled  the  use  of  land  maps,  it  secured  the  special  commis- 
sion of  investigation,  and  it  has  become  somewhat  more  awake  to 
the  necessity  of  administrative  reform.  It  is  possible  that  this 
board  may  develop  into  a  regular  tax  commission  along  the  lines 
suggested  by  the  special  tax  commission.^ 

^  Utah  State  Board  of  Equalization,  Report,  1910,  p.  7. 
*  Ibid.,  1901-02,  p.  4. 

'  Cf .  the  remarks  of  the  Utah  delegates  at  the  Eighth  National  Tax  Conference, 
Denver,  1914,  Proceedings,  pp.  110-114. 


CHAPTER  III 

STATE  BOARDS  OF  EQUALIZATION  AND  ASSESSMENT 
(Concluded) 

The  California  State  Board  of  Equalization 

The  first  state  board  of  equalization  in  California  was  created  in 
1870.^  It  was  composed  of  the  state  comptroller  and  two  members 
appointed  by  the  governor  for  four  years  at  a  salary  of  $3000.  The 
board  was  to  assemble  for  monthly  meetings  and  was  to  continue 
in  session  until  disposition  had  been  made  of  all  the  business 
before  it.  Its  chief  duties  related  to  the  state  equaKzation  which 
was  provided  by  the  act,  and  in  connection  with  which  the  board 
was  to  conduct  inquiries  along  the  following  lines :  ^ 

(o)  .  .  .  as  to  the  mode  and  manner  in  which  the  assessors  and  collectors 
of  revenue  perform  their  duties  .  .  .  ; 

(6)  as  to  whether  the  assessment  made  by  the  local  assessors  of  the  sev- 
eral counties  are  equal  and  uniform  according  to  location,  soil  and 
improvements,  production  and  manufactures. 

In  cases  of  gross  neglect  on  the  part  of  the  local  assessors,  the 
board  was  to  report  the  matter  to  the  district  attorney  through 
whom  action  for  removal  was  to  be  taken.  For  some  perverse 
reason,  the  state  equaKzation  was  to  be  made  before  that  of  the 
county  boards,  an  illogical  arrangement  which  left  the  state  board 
at  a  great  disadvantage.  The  law  also  provided  that  members  of 
the  latter  board  should  visit  the  counties  if  this  proved  necessary. 
Needless  to  say,  such  a  tour  did  speedily  prove  to  be  necessary 
as  the  county  assessors  were  either  unwilling  or  unable  to  make 
the  returns  asked  for  by  the  state  board.  Some  indication  of  the 
conditions  which  by  their  prevalence  over  the  state  had  given  rise 
to  this  board  may  be  seen  from  the  specific  objects  sought  on  the 

1  Laws  0}  California,  1870,  ch.  489.    Fankhouser's  A  Financial  History  of  Cali- 
fornia contains  valuable  historical  material. 
*  From  the  law  creating  the  board. 

84 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        85 

first  expedition  through  the  counties.    Among  these  were  the 
following:  ^ 

I.  To  obtain  county  maps;  2.  to  obtain  from  each  assessor  his  definition 
of  full  cash  value  and  the  per  cent  thereof  used  in  assessing  property;  3.  to 
instruct  assessors  not  to  discriminate  between  large  and  small  tracts  of  the 
same  character;  4.  to  ascertain  the  causes  of  the  great  disparity  of  the  valua- 
tions of  personal  property  in  the  several  counties;  5.  to  correct  the  neglect 
to  assess  furniture,  watches,  libraries  and  money,  all  of  which  some  assessors 
regarded  as  not  worth  looking  after;  6.  to  arrange  for  a  return  of  a  copy  of 
the  assessor's  roll  in  187 1;  7.  to  have  improvements  listed  separately;  8.  to 
induce  the  local  boards  to  be  more  strict  in  granting  reductions. 

The  situation  which  had  developed  in  California  under  a  com- 
pletely decentralized  administrative  system  was  probably  one  of 
the  worst  in  the  United  States.  Few  of  the  counties  had  land 
maps  and  it  was  uncertain  in  many  counties  whether  all  of  the 
real  estate  was  even  listed  for  assessment. ^  Merchandise  was 
seldom  assessed  and  live  stock  was  always  underassessed,  while 
many  classes  of  personal  property  were  entirely  overlooked  by  the 
assessor.  There  was  absolutely  no  uniformity  in  the  definition  or 
the  application  of  the  term  "  full  cash  value,"  with  the  result  that 
"  the  rich  counties  were  shielded  and  benefited,  while  the  poorer 
counties,  less  fertile  in  resources  and  burdened  with  debt,  bore 
relatively  the  larger  burden  of  taxes."  ^  Competitive  undervalua- 
tion was  present  in  California  as  in  Ohio  and  New  York.  One  of 
the  worst  abuses  was  in  the  unlimited  power  of  the  county  boards 
to  reduce  valuations.  An  extreme  instance  of  the  unwarranted 
exercise  of  this  power  occurred  in  187 1.  The  board  of  San  Mateo 
county  reduced  valuations  in  1233  cases,  though  applications  for 
relief  had  been  made  by  only  19  taxpayers  in  person  and  by  only 
37  through  attorney.  Of  the  56  applicants,  35  gave  no  reason  at 
all  for  the  desired  reduction  and  none  of  the  others  alleged  over- 
assessment.  The  total  valuation  of  the  county  was  lowered  by 
these  reductions  from  $4,301,196  to  $1,897,200.'*  Another  source 
of  improper  and  incomplete  assessments,  especially  in  the  larger 

'  California  State  Board  of  Equalization,  Report,  1870-71,  p.  6. 
2  Ibid.,  pp.  8,  9.      The  special  tax  commission  created  in  19 15  found  some  land 
not  yet  on  the  tax  rolls.    Cf.  its  Foreword  on  Taxation  in  California,  1916,  p.  7. 
'  Ibid.,  p.  13. 
*  Ibid.,  p.  16. 


86  THE  STATE  TAX  COMMISSION 

counties,  was  the  practice  of  "  farming  out  "  the  actual  work  of 
assessment  to  deputies.  The  assessor's  salary  did  not  permit  him 
to  engage  deputies  by  the  day  and  if  he  wished  to  obtain  any 
income  for  himself  from  the  office  he  was  obHged  to  sublet  the 
actual  assessment  work  on  contract.  Between  the  thrifty  assessor 
and  his  subcontractors  there  was  little  room  for  considerations 
of  equity  and  general  welfare  in  the  labors  of  the  assessment 
season. 

Such  was  the  chaos  into  which  the  Cahfornia  tax  system  had 
fallen  and  from  which  the  state  board  of  equalization  was  expected 
to  rescue  it.  The  board  was  unable  to  perform  an  equalization  in 
either  of  the  first  two  years  because  of  its  inability  to  secure 
returns  from  the  county  assessors  before  the  date  set  for  the  meet- 
ings of  the  county  boards.^  No  authority  existed  to  compel  the 
county  assessors  to  cooperate  with  the  state  board  to  this  extent 
and  some  of  them  took  this  means  of  defeating  the  purposes  for 
which  the  state  equalization  had  been  established.  In  addition, 
the  county  boards  blocked  the  efforts  to  secure  the  county  returns 
by  refusing  to  sanction  the  work  of  the  assessors  in  preparing  the 
necessary  statements.  An  effort  was  made  in  1870  to  enHst  the 
sympathy  and  support  of  the  assessors  by  assembHng  them  in  a 
state  convention;  but  about  the  only  gain  from  this  meeting,  which 
was  largely  attended,  was  the  display  of  absolute  non-uniformity 
of  action  among  the  assessors  both  in  their  construction  of 
the  law  and  of  their  methods  of  applying  it.  Though  the  meeting 
adopted  a  definition  of  "  full  cash  value  "  which  it  was  agreed 
should  be  used  by  all,  it  was  impossible  to  show  that  the  confer- 
ence had  in  any  way  affected  the  work  of  the  assessors  in  1871.^ 
As  little  could  be  shown  for  the  other  elaborate  preparations  for  a 
more  uniform  assessment  in  this  year.  Instructions  had  been 
issued  to  the  assessors,  suggesting  a  classified  instead  of  a  lump 
sum  assessment  of  personal  property,  and  asking  for  an  estimate 
of  the  full  value  with  the  percentage  used  by  the  assessor.  Very 
incomplete  returns  were  received  but  from  such  replies  as  were 
made  to  this  request  a  table  of  percentages  of  assessed  to  true 

1  California  State  Board  of  Equalization,  Report,  1870-71,  pp.  3,  21. 
^  Ibid.,  p.  4. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        87 

value  was  compiled,  the  range  of  which  revealed  the  hopelessness 
of  attaining  any  material  uniformity  without  greater  control  over 
the  acts  of  the  local  assessors.'  The  estimates  ranged  from  one- 
third  to  full  value  for  personal  property  and  from  40  per  cent  to 
80  per  cent  for  real  estate,  but  with  absolutely  no  tendency  to  a 
common  basis  anywhere  within  these  limits. ^ 

The  authority  of  the  board  was  extended  somewhat  by  the 
Political  Code  of  1872,  by  which  power  was  given  to  prescribe 
rules  and  regulations  to  govern  both  assessors  and  county  boards. 
Local  oj6&cials  were  required  to  observe  the  regulations  prescribed 
under  this  section.^  The  effect  of  this  additional  authority  was  at 
once  felt  throughout  the  tax  system.  The  board  remarked,  with 
more  enthusiasm  than  regard  for  literal  truth,  that  "  all  assessors 
did  their  work  with  faithfulness,  industry  and  abiHty."  ■*  How- 
ever, the  achievement  certainly  did  reflect  credit  upon  those  in 
charge,  as  the  figures  show:  ^ 

Total  Assessment  of  Property,  1870-73 

Year  Assessment  Year  Assessment 

1870 $277,538,127  1872 $636,378,114 

1871 268,709,133  1873 527,203,982 

The  feeble  authority  of  the  board  under  the  original  act  is  shown 
by  the  decline  of  the  total  assessment  in  1871  in  the  face  of  its 
efforts  to  secure  better  returns.  Since  no  state  equalization  was 
made,  its  labors  served  principally  to  call  public  attenton  to  the 
need  of  much  stronger  measures,  of  which  the  provisions  of  the 
Code  were  only  a  beginning.  The  sUght  additional  authority 
given  to  the  board  by  the  new  legislation  produced  gratifying 
results,  representing  an  advance  of  136.8  per  cent  over  1871.  No 
reduction  was  made  in  the  rate  of  the  state  tax  on  account  of  the 
higher  valuation  as  the  new  Code  had  shifted  a  greater  portion  of 
the  state  expenses  to  that  source  by  reducing  poll  taxes  and 

1  California  State  Board  of  Equalization,  Report,  1870-71,  pp.  20-22. 

*  Ibid.,  pp.  30,  31. 

'  Political  Code  of  California,  1872,  ii,  pp.  50  ff.  The  board  had  urged  this 
revision  in  its  report,  1870-71,  p.  23. 

*  California  State  Board  of  Equalization,  Report,  1872-73,  p.  6. 

*  Ibid.,  pp.  10,  II. 


88 


THE  STATE  TAX  COMMISSION 


eliminating  some  of  the  license  taxes. ^  By  these  changes  equali- 
zation was  rendered  even  more  important  than  before,  though  the 
limited  powers  given  to  the  board  and  the  narrow  views  taken  by 
the  courts  imphed  little  enough  appreciation  of  this  fact.  There 
were  some  significant  reductions  in  county  rates,  specimens  of 
which  are  given  below.^  No  details  of  the  actual  equalization  are 
presented  in  the  reports  and  it  is  quite  probable  that  the  board's 
efforts  were  still  confined  chiefly  to  the  advisory  work  of  the 
preassessment  season. 

Its  triumph  was  but  short-lived,  however.  The  total  assess- 
ment for  1873  shows  a  decline  of  about  $90,000,000  from  the  level 
of  1872  in  explanation  of  which  at  least  two  circumstances  should 
be  noted.  In  the  first  place,  the  amount  of  mortgages  returned  for 
taxation  in  1873  was  much  less  than  in  the  preceding  year.  The 
taxable  status  of  mortgages  had  been  quite  uncertain  for  some 
years  owing  to  various  legislative  acts  and  to  certain  court  deci- 
sions. In  the  session  of  1869-70  mortgages  had  been  exempted, 
but  the  Code  of  1872  restored  them  to  the  taxable  list.^  This 
action  was  sustained  by  the  court  in  1873  but  the  general  impres- 
sion of  the  force  of  the  decision  was  that  mortgages  had  been 
thereby  exempted.*  The  wish  was  evidently  father  to  this  inter- 
pretation, the  effect  of  which  was  a  marked  decline  in  the  volume 
of  mortgages  returned.  In  1876  the  courts  held  that  mortgages 
were  not  property  in  the  meaning  of  the  constitution  ^  and  the 
dissatisfaction  with  this  interpretation  of  the  organic  law,  to- 

^  California  State  Board  of  Equalization,  Report,  1872-73,  p.  14.    The  Code  had 
imposed  upon  the  board  the  duty  of  calculating  the  rate  of  the  state  tax. 
^  Some  typical  reductions  of  local  tax  rates  were  as  follows : 


Tax  rate  in 

County 

Tax  rate  in 

County 

1871 

1872 

1871 

1872 

Alameda 

2.47 
1.92 

$1.00 
ISO 

.92 

$2.46i 

2.21 

Sacramento 

I  OS 

San  Mateo 

'  Laws  of  California,  1869-70,  ch.  485;   Political  Code  of  1S72,  Title  IX,  ch.  i; 
43  Calif.  331;  People  v.  Eddy. 

*  Plehn,  "  The  Taxation  of  Mortgages  in  California,"  Yale  Review,  viii,  p.  36. 
Also,  46  Calif.  416. 

*  51  Calif.  243. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT         89 

gather  with  the  desire  to  provide  for  mortgage  taxation,  were 
important  motives  for  the  revision  of  the  constitution  in  1879.^ 

The  second  factor  in  the  decline  of  the  total  assessment  in  1873 
was  the  emasculation  of  the  board's  powers  by  the  courts. ^  The 
leading  case  involved  the  power  to  equalize  valuations.  It  was 
held  that  the  constitution  required  property  to  be  assessed  by  an 
officer  elected  by  those  whose  property  he  was  to  assess.  The  proc- 
ess of  equalization  was  a  part  of  the  function  of  assessment  since 
to  raise  the  valuation  of  a  county  was  virtually  to  make  a  new 
assessment.  This  process  could  not,  therefore,  be  delegated  to  an 
appointive  board  of  equalization.  Following  this  construction  of 
its  functions,  the  board  "  lost  even  a  moral  power  over  the  asses- 
sors," ^  and  from  1873  to  the  adoption  of  the  new  constitution  in 

1879  its  functions  were  limited  to  ascertaining  and  stating  the 
rate  of  the  state  taxes.*  The  withdrawal  of  the  sHght  supervisory 
control  which  the  board  had  exercised  resulted  in  a  rapid  degen- 
eration into  the  old  conditions  of  underassessment,  marked  espe- 
cially by  diminished  assessment  of  personal  property.  Between 
1876  and  1879  the  total  assessment  of  money  dropped  from  $16- 
904,218  to  $9,866,986;  of  these  amounts  almost  the  whole  was 
listed  in  San  Francisco.^  From  1872  to  1880  the  assessment  of 
property  of  the  same  kind  increased  only  14.6  per  cent,  while 
population  increased  39.2  per  cent.  It  was  obvious  to  the  board  in 

1880  that  all  of  the  property  of  the  state  had  not  been  listed  and 
that  assessments  had  not  been  made  at  full  cash  value. ^ 

The  second  board  of  equalization  was  provided  for  by  the  new 
constitution  of  1879.^  It  was  to  consist  of  one  member  elected 
from  each  congressional  district  for  four  years  with  the  comptrol- 
ler of  state  as  an  ex  officio  member.  According  to  the  original 
language  of  the  constitution  the  board  was  "  to  equalize  the  valua- 
tions of  the  taxable  property  of  the  several  counties  in  the  state 

1  Plehn,  loc.  cil.  *  47  Calif.  651. 

'  California  Board  of  Equalization,  Report,  1880,  p.  27. 

*  Ibid.,  1883-84,  p.  3. 

^  Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1906,  p.  56. 
Also  Plehn,  loc.  cit.,  pp.  36,  37. 

•  California  State  Board  of  Equalization,  Report,  1880,  p.  35. 
'  Constitution  of  California,  1879,  Art.  XIII,  §§  9,  10. 


90  THE  STATE  TAX  COMMISSION 

for  the  purpose  of  taxation."  Another  section  required  it  to  assess 
railroads,  a  duty  which  will  be  discussed  below.^  The  new  board 
began  at  once,  with  considerable  vigor,  an  investigation  of  tax 
conditions  in  the  several  counties  and  visited  all  but  15  of  them. 
The  troubles  of  the  assessors  had  been  increased  by  the  addition 
of  mortgages,  franchises,  capital  stock,  and  solvent  credits  to  the 
taxable  property.  In  the  local  visits  sales  data  were  gathered, 
assessors  quizzed  as  to  the  basis  of  valuation  used,  and  the  general 
mechanism  of  equalization  set  in  operation  again.^  Consideration 
of  the  first  data  gathered  led  to  the  conclusion  that  the  assess- 
ments of  lands  and  sheep  in  29  counties  should  be  raised  from  10 
per  cent  to  50  per  cent,  but  in  view  of  another  court  decision  which 
cut  deeply  into  the  board's  powers  the  increases  were  not  made.' 
This  decision  hinged  upon  the  interpretation  of  the  new  constitu- 
tion as  to  the  power  of  the  board  to  change  individual  assess- 
ments.* The  board  had  taken  the  position  that  it  possessed  such 
powers  and  had  begun  a  vigorous  equalization  which  would  have 
been  of  considerable  significance  had  it  been  completed  along  the 
lines  contemplated.  It  was  estimated  that  the  power  to  change 
individual  assessments  would  alone  have  added  $10,000,000  to  the 
rolls. ^  The  court  held,  however,  that  absurd  and  injurious  con- 
sequences would  follow  if  the  state  board  of  equalization  were 
allowed  to  change  individual  assessments,  but  that  the  adminis- 
trative portion  of  the  tax  system  would  be  a  harmonious  whole  if 
the  county  board  equahzed  among  individuals  while  the  state 
board  equalized  among  the  counties  only.  Such  a  view  was  based, 
as  the  board  observed,  upon  an  ignorance  of  the  history  of 
the  state  revenue  system.^  The  performances  of  the  San  Mateo 
county  board  in  187 1  should  have  exposed  the  fallacy  of  the 
court's  reasoning;  ^  and  had  this  not  sufficed  the  case  of  the  San 
Francisco  banks  in  1872-73  should  have  been  convincing.  In  1872 

^  See  below,  pp.  94-96. 

*  California  State  Board  of  Equalization,  Report,  1880,  pp.  6,  9. 
^  Ibid.,  pp.  10,  27. 

*  Wells  Fargo  v.  State  Board  of  Equalization,  56  Calif.  194. 

^  California  State  Board  of  Equalization,  Report,  1880,  p.  24. 

*  Ibid.,  p.  20. 

^  Cf.  above,  p.  85. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        9 1 

17  savings  institutions  in  San  Francisco  had  been  assessed  at  a 
total  of  $40,918,000,  but  the  county  board,  acting  under  special 
pressure,  cancelled  the  assessment.  After  two  appeals  to  the 
highest  court  the  board  succeeded  in  restoring  the  assessments  to 
the  rolls  but  in  1873  the  banks  virtually  cancelled  their  own 
assessments  as  the  total  for  the  17  institutions  was  only  $1,530,- 
000.^  This  experience  led  the  board  to  demand  some  means  for 
the  proper  punishment  of  ofl&cials  who  evaded  the  law  in  the 
interest  of  large  corporations,  but  little  was  to  be  accomplished  in 
that  generation  toward  breaking  the  hold  of  corporate  interests  on 
the  administration  of  every  branch  of  the  state  government.  In 
addition  to  the  court's  unfamiHarity  with  past  conditions  which 
had  already  demonstrated  the  impossibility  of  the  judicial  sug- 
gestions, it  was  apparently  ignorant  also  of  the  spirit  of  competi- 
tive undervaluation  which  had  made  state  and  local  equalization 
necessary  and  of  the  tremendous  temptation  to  introduce  local 
inequalities  through  favoritism.  The  decision  meant  virtual 
demoralization  of  the  tax  system,  evidence  of  which  was  at  once 
apparent  in  the  assessed  valuations.  The  total  assessment  of 
property  (including  real  estate,  personal  property,  and  money, the 
characteristic  California  grouping)  declined  from  $628,800,000  in 
1880  to  $579,000,000  in  1882.2  In  the  following  year  the  board 
determined  upon  a  vigorous  equaHzation  by  counties,  the  only 
power  which  was  left  to  it.  The  first  detailed  results  of  equaliza- 
tion were  pubhshed  in  this  year,  showing  advances  of  10  per  cent 
to  20  per  cent  in  twenty  counties,  with  a  total  increase  of  $71,429, 
268.^  In  1884  the  action  was  somewhat  less  drastic,  but  it  resulted 
in  thirteen  advances  and  one  reduction,  with  a  net  increase  of 
$37,777,682.* 

This  vigorous  policy  was  of  short  duration,  for  beginning  with 
the  later  eighties  the  equalization  became  more  irregular  and  less 
determination  was  displayed  in  handling  the  returns.  In  1889 
only  six  counties  were  changed,  of  which  five  were  lowered,  with  a 
net  reduction  of  $28,128,000.    In  1890  the  only  change  was  a  10 

'  California  State  Board  of  Equalization,  Report,  1872-73,  pp.  15-19. 

"  Ibid.,  1883-84,  p.  5. 

»  Ibid.,  pp.  24,  25.  *  Ibid.,  p.  37. 


92  THE  STATE  TAX  COMMISSION 

per  cent  reduction  amounting  to  less  than  $1,000,000.^  The  next 
year  advances  of  5  per  cent  to  10  per  cent  were  made  in  nine  coun- 
ties, totalling  $112,418,398.  Again,  in  1892,  four  counties,  all  of 
which  had  been  included  in  the  advance  of  the  previous  year,  were 
increased  by  a  total  of  $76,603,649.2  This  activity  was  only  spas- 
modic and  the  board  again  subsided  into  a  policy  of  mere  formal 
adjustments.  Such  alternation  between  vigorous  and  indifferent 
action,  but  with  gradually  lessening  fervor  on  the  whole,  has  been 
the  experience  of  almost  every  state  board  of  equalization,  as  its 
narrow  authority  has  proved  increasingly  inadequate  to  correct 
obvious  inequalities.  In  1892  the  board  admitted  that  it  had 
knowledge  of  many  inequalities  but  was  without  power  to  correct 
them.^  This  inability  goes  back  to  the  Wells  Fargo  decision  of 
1880.*  The  virtual  effect  of  this  decision  was  to  restrict  the  equali- 
zation to  an  adjustment  between  the  rural  and  the  urban  counties 
and  the  board  alternately  lowered  the  one  or  raised  the  other 
group  in  the  effort  to  attain  a  crude  equality  of  burden.  Thus,  in 
1895,  compensation  was  sought  by  ordering  a  flat  reduction  of  10 
per  cent  in  twenty-six  counties,  giving  a  total  decrease  of  $36,696,- 
340.^  In  the  following  year  five  counties  containing  urban  centers 
were  increased  $74,113,818,  and  two  were  reduced  $3,086,821.^  In 

1897  reductions  were  ordered  in  forty-two  rural  counties,  and  in 

1898  the  whole  assessment  roll  was  left  unchanged.  The  detailed 
action  of  the  board  was  published  only  twice  in  the  years  1899  ^^ 
1910.  In  1903  a  substantial  advance  of  $178,423,555  was  made 
by  raising  eighteen  counties  from  10  per  cent  to  20  per  cent.^ 
Nine  of  the  counties  in  this  Hst,  and  nine  others,  were  advanced 
from  10  per  cent  to  100  per  cent  in  1909,  giving  a  total  increase  of 

$321,532,596-' 

The  special  tax  commission  of  1906  condemned  the  whole 
equalization  theory,  and  incidentally,  the  California  application 

^  California  State  Board  of  Equalization,  Report,  1889-90,  p.  13. 

*  Ibid.,  1891-92,  p.  8. 
'  Ibid.,  1891-92,  p.  4. 

*  Cf.  above,  p.  90. 

*  California  State  Board  of  Equalization,  Report,  1895-96,  p.  6. 
^  Ibid.,  p.  46. 

"  Ibid.,  1903-04,  p.  5.  *  Ibid.,  1909-10,  p.  17. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        93 

of  it,  without  qualification.^  Its  criticism  was  not  wholly  well- 
founded,  for  it  has  been  seen  that  the  originally  inadequate 
powers  of  the  state  board  had  been  largely  whittled  away  by  the 
courts.  The  critical  attitude  of  the  commission  stimulated  the 
board,  apparently,  for  it  gave  evidence  in  the  years  following  this 
report  that  it  desired  more  power  and  proposed  to  push  more 
vigorously  for  better  conditions  of  assessment.^  In  the  second 
report  of  the  special  commission,  published  in  19 10,  the  attack 
upon  the  board  was  continued  and  numerous  instances  were  intro- 
duced of  obvious  injustice  in  the  tax  burden,  though  again  there 
was  not  sufficient  recognition  of  the  board's  inadequate  powers  as 
a  cause  for  these  conditions.  The  special  commission  was  inter- 
ested in  securing  separation  of  sources  of  state  and  local  revenue, 
under  which  it  beheved  that  equalization  by  a  state  board  would 
no  longer  be  necessary.^  Its  arguments  proved  effective  and  the 
new  revenue  system  was  adopted  in  19 10.*  The  direct  state  tax 
was  relinquished  except  as  an  emergency  measure,  to  supple- 
ment the  regular  sources  of  state  revenue.  The  function  of  state 
equaHzation  has  become  therefore  relatively  unimportant,  being 
confined  to  the  annual  review  of  the  locally  assessed  real  estate 
of  banks  and  insurance  companies  for  the  purpose  of  preventing 
the  encroachment,  by  the  local  assessors,  upon  the  state's 
revenues  from  these  corporations  through  overvaluation  of  the 
real  property  locally  assessed.^ 

*  Cf.  the  following  statement:  "  Equalization,  so-called,  does  not  equalize,  and 
in  the  nature  of  things,  cannot  equalize.  After  the  officers  have  exhausted  their 
best  efforts  in  this  direction,  there  are  inequalities — glaring  ones — between  real  and 
personal  property;  between  different  classes  of  personal  property;  between  county 
and  county;  between  city  and  city;  between  city  and  country;  between  man  and 
man.  All  of  which  are  rarely  removed,  and  often  intensified,  by  so-called  equali- 
zation." Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1906, 
p.  10. 

2  For  instance,  cf.  the  vigorous  discussion  and  recommendations  for  further 
administrative  centralization  in  its  report  for  1907-08,  pp.  12-18.  The  board  rec- 
ommended extension  of  its  power  to  permit  the  change  of  any  individual  assessment, 
or  that  of  any  class  or  subdivision  of  a  class  of  property;  and  for  the  centralized 
administration  of  the  assessment  of  more  classes  of  corporations.  The  decision  of 
the  Wells  Fargo  case  was  again  severely  criticized. 

^  Cf.  Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1906,  p.  11. 

*  The  amendment  became  Art.  XIII,  §  14,  of  the  constitution, 

'  Cf.  California  State  Board  of  Equalization,  Report,  191 2.     Potentially  the 


94  THE  STATE  TAX  COMMISSION 

Central  Administration  of  Corporation  Taxes  —  Previous  to  the 
changes  of  1910  centralized  administration  had  been  appHed 
only  to  the  taxation  of  railroads.  The  trials  and  discouragements 
of  this  experiment  were  quite  sufficient  to  dampen  any  enthusiasm 
for  extension,  regardless  of  the  defects  of  local  administration. 
Originally  all  corporations  were  taxed  locally  under  the  general 
property  tax,  as  a  matter  of  course.  The  circumstances  under 
which  the  early  railroads  of  California  were  built  gave  rise  to  a 
question  of  jurisdiction  —  had  the  state  the  right  to  tax  a  railroad 
chartered  by  the  federal  government,  or  subsidized  by  it,  or  en- 
gaged in  interstate  commerce  ?  This  right  was  affirmed  in  1872.^ 
The  first  step  toward  administrative  centralization  was  taken  at 
this  time,  in  the  provision  that  the  state  board  of  equalization 
should  assess  rolling  stock  and  apportion  it  to  the  counties  on  a 
mileage  basis.^  All  other  railroad  property  remained  locally  as- 
sessable until  the  constitution  of  1879,  which  required  the  state 
board  of  equalization  to  assess  the  "  franchises,  roadway,  road- 
bed, rails,  and  rolling  stock  of  all  railroads  operating  in  more  than 
one  county."  ^  The  Pullman  Company  was  included  in  the  state 
assessment  by  construction,  but  all  other  corporations  remained 
within  the  local  jurisdiction  and  consequently  escaped  with  very 
Hght  taxes.  The  railroads  fought  vigorously  the  transfer  of  taxing 
authority  and  for  fifteen  years  succeeded  in  hindering  the  state's 
efforts  at  adequate  taxation.*  After  a  large  number  of  cases  had 
cleared  the  bewildering  jungle  of  technicalities  that  had  been 
raised,  the  final  question  was  whether  the  taxation  of  a  federal 
franchise  were  involved.    It  was  admitted  that  the  assessment 

board  still  possesses  all  of  the  power  of  equalization  given  in  1879,  but  the  com- 
plete change  in  the  method  of  raising  state  revenues  has  placed  this  power  in  abey- 
ance, except  for  the  equalization  to  be  made  in  the  case  of  the  real  estate  of  certain 
corporations,  and  the  equalization  of  all  property  for  the  purpose  of  distributing 
the  small  direct  tax  which  was  to  be  levied  until  191 5  for  the  purpose  of  financing 
the  Panama-Pacific  International  Exposition  in  San  Francisco  in  191 5. 

^  People  V.  Central  Pacific  Railroad  Co.,  43  Calif.  398. 

^  Political  Code  of  California,  1872,  §  3663,  as  amended  by  Laws  of  1872,  ch.  417. 

'  Constitution  of  California,  1879.     Art.  XIII,  §  10. 

*  The  leading  federal  case  is  in  162  U.  S.  91,  decided  in  1895.  Also,  105  Calif. 
576.  Cf.  Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1906, 
pp.  105-107,  and  Plehn,  The  General  Property  Tax  in  California,  pp.  178-182. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        95 

would  be  legal  if  it  did  not  involve  a  federal  franchise,  and  the 
litigation  was  ended  when  it  was  held  that  the  state  did  not  tax 
that  franchise.  The  railroads  paid  up  the  back  taxes  which  they 
had  withheld  during  the  period  of  litigation  and  the  legislature 
ordered  the  state  board  to  reassess  certain  lines,  the  former  assess- 
ment of  which  had  been  declared  illegal.^  The  distinction  between 
the  federal  and  the  state  franchise  seems  a  purely  technical  matter 
and  it  is  extremely  doubtful  if  the  final  decision  had  any  practical 
effect  upon  the  actual  assessment.^ 

The  methods  used  by  the  board  are  nowhere  described  in  its 
own  publications.  They  were  alluded  to  as  follows  by  the  rather 
critical  Commission  on  Revenue  and  Taxation,  in  1910:^ 

Until  recently  the  board  counted  the  number  of  locomotives  and  cars, 
and  guessed  at  their  value,  then  guessed  again  at  the  value  of  the  franchises 
and  reached  a  total  —  such  as  it  was.  What  wonder  that  they  gladly 
adopted  the  suggestion  of  this  commission  that  if  they  made  such  a  valuation 
that  the  total  taxes  would  equal  four  per  cent  of  the  gross  earnings  they 
would  be  doing  effective  justice.  Since  1906  the  assessment  of  railroads  has 
been  made  by  the  application  of  a  mathematical  rule,  and  guesswork  has 
stopped. 

It  is  quite  probable  that  no  great  development  of  method  had 
occurred  and  the  commission's  charge  of  guesswork  doubtless  had 
foundation;  though,  as  will  be  seen,  this  commission's  later 
recommendations  have  not  entirely  eliminated  guesswork  from 
corporate  assessment. 

The  results  of  the  state  assessment  suggest  a  lack  of  system  and 
a  depression  of  spirit  due  to  the  vigorous  protests  of  the  rail- 
roads. The  aggregate  figures  rose  from  $27,602,313  in  1882  to 
$50,746,500  in  1884.  Thereafter  they  dwindled  to  $40,408,652  by 
1890;  then  an  equally  slow  advance  began  and  in  1901  the  aggre- 
gate had  reached  $49,121,485.'*  From  this  point  the  board  was 
more  aggressive  and  by  1910  it  had  added  $58,411,702  to  the 
assessment.^    There  was  naturally  considerable  inequahty  be- 

1  Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1906,  pp.  106, 
107.     Laws  of  California,  1893,  ch.  207. 

^  This  was  the  view  also  of  the  special  revenue  commission  of  1906. 

'  Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1910,  p.  35. 

*  The  figures  to  1906  are  given  in  ibid.,  1906,  p.  107. 

^  California  State  Board  of  Equalization,  Report,  1909-10,  p.  39. 


96  THE  STATE  TAX  COMMISSION 

tween  classes  of  corporations.  In  1906  the  special  commission  pre- 
sented figures  to  show  that  the  railroad  tax  represented  a  rate  of 
3.64  per  cent  on  gross  earnings,  while  the  taxes  on  the  utilities 
locally  assessed  ranged  from  .514  per  cent  in  the  case  of  express 
companies  to  7.09  per  cent  for  water  companies.^  The  inequality 
of  tax  burden  here  disclosed  could  have  been  remedied,  of  course, 
by  an  extension  of  the  authority  and  jurisdiction  of  the  state 
board  of  equalization.  But  the  commission  of  1906  preferred  to 
incorporate  the  gross  earnings  tax  as  the  basis  of  its  revised 
system  of  corporate  taxation. 

This  revision  of  the  state  revenue  system,  in  which  separation 
of  the  sources  of  state  and  local  revenue  was  the  central  feature, 
was  made  effective  by  a  constitutional  amendment  of  1910.  The 
state  revenues  were  to  be  obtained  from  a  series  of  gross  earnings 
and  franchise  taxes  on  various  classes  of  corporations.  The  locali- 
ties were  to  retain  the  general  property  tax,  in  the  administration 
of  which  they  were  to  be  free  from  central  supervision  except  in  so 
far  as  the  local  assessment  might  affect  the  basis  of  the  state  rev- 
enues.2  The  administration  of  the  corporation  taxes  laid  upon  the 
state  board  a  considerable  range  of  duties,  varying  from  the  cleri- 
cal labor  of  computing  the  amounts  due  in  taxes  on  gross  earnings 
to  the  valuation  and  assessment  of  corporate  franchises.^  It  was 
evidently  the  conviction  of  the  commission  of  1906  that  this 
reform,  for  which  it  had  so  zealously  wrought,  would  end  the 
guesswork  and  uncertainty  of  the  former  methods  of  corporate 
assessment.  It  believed  also  that  greater  equality  of  tax  burden 
would  result  among  classes  of  corporations,  and  between  corpo- 
rate and  other  property.  But  these  anticipations  have  not  been 
fulfilled;  indeed,  the  state  tax  commission  which  reported  in 
191 7  condemned  the  results  of  this  plan  in  no  uncertain  terms.* 

The  tax  on  gross  earnings,  which  is  levied  upon  certain  classes  of 
public  utilities,  has  occasioned  little  administrative  difficulty,  but 
it  has  already  been  found  to  be  rigid  and  inflexible  and  in  a  time  of 

^  Report  of  the  Commission  on  Revenue  and  Taxation  of  California,  1906,  p.  68. 
2  Cf.  above,  p.  93. 

'  Cf.  California  State  Board  of  Equalization,  Report,  1911-12,  p.  9,  for  a  de- 
scription of  its  varied  duties. 

*  Cf.  Report  of  the  California  State  Tax  Commission,  1917,  pp.  8-13. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        97 

rapidly  increasing  tax  burden  this  rigidity  confers  a  distinct 
advantage  upon  the  property  taxed  under  it.  In  1913  and  again 
in  191 5  the  legislature  readjusted  the  rates  on  gross  earnings  in 
order  to  equalize  the  tax  burden  and  secure  additional  revenue.^ 
In  any  case  legislative  equalization  of  this  sort  is  purely  experi- 
mental —  it  does  not  and  cannot  really  equalize  and  its  advantage 
over  the  ad  valorem  method  is  exceedingly  doubtful.  The  re- 
quirement of  legislative  sanction  (two-thirds  affirmative  vote  of 
each  branch)  gives  such  an  equaUzation  unnecessary  political  sig- 
nificance, and  may  prove  in  the  future  an  effective  bar  to  further 
changes  in  these  rates.  These  objections  —  inelastic  yield,  rigid 
rates  and  legislative  control  over  the  rates  —  have  been  encoun- 
tered in  Minnesota.^  Together  they  constitute  a  strong  case 
against  this  system  of  corporate  taxation. 

On  the  other  hand,  the  system  of  franchise  taxes  which  was  in- 
troduced by  the  amendment  of  19 10  has  presented  very  serious 
administrative  problems,  toward  the  solution  of  which  the  board 
has  up  to  the  present  (191 7)  made  little  progress.  The  legislature 
shares  the  responsibiHty  here  because  of  its  blunder  in  prescribing 
the  powers  of  the  board.  Entirely  inadequate  provision  was  made 
originally  for  securing  the  information  requisite  to  proper  fran- 
chise valuation.  This  oversight  was  corrected  in  19 13  and  the 
board  now  possesses  ample  authority  to  compel  the  production  of 
any  data  desired  and  to  reassess  any  franchise  valuations  which 
have  been  ruled  out  by  the  courts.^  The  law  lays  down  no  pro- 
cedure for  franchise  valuation  though  the  courts  have  often  ruled 
that  the  value  of  the  franchise  is  equal  to  the  "  corporate  excess."  * 

^  A  stock  and  bond  valuation  of  public  utilities  was  made  for  the  special  tax  com- 
mission of  191 7,  in  which  it  was  found  that  the  utilities  are  just  now  bearing  a 
slightly  higher  rate  of  ad  valorem  tax  than  the  average  state  rate  on  general  prop- 
erty. The  commission  felt,  however,  that  no  reduction  in  the  gross  earnings  rates 
was  called  for  since  this  excess  did  not  offset  the  advantage  which  the  utilities  had 
been  shown  to  enjoy  in  the  investigations  of  1913  and  1915.    Report,  pp.  50,  51. 

2  Cf.  below,  pp.  411-413. 

'  Laws  of  California,  1913,  ch.  320.  State  Board  of  Equalization,  Report,  1914, 
pp.  16,  17. 

*  Spring  Valley  Water  Works  v.  Schottler,  62  Calif.  69.  Cf.  Report  of  the  Commis- 
sion on  Revenue  and  Taxation  of  California,  1906,  pp.  267,  268,  and  Plehn,  "  The 
Taxation  of  Franchises  in  California,"  National  Municipal  Review,  i,  pp.  337-354. 


98  THE  STATE  TAX  COMMISSION 

The  board  has  been  groping  amid  the  problems  of  franchise 
valuation  and  its  results  are  admittedly  only  rough  approxi- 
mations.^ 

The  special  tax  commission  made  a  very  thorough  study  of  the 
operation  of  this  part  of  the  tax  system  also,  and  prepared  tables 
which  revealed  wide  differences  in  the  ratio  of  franchise  tax  to 
gross  and  net  receipts. ^  After  six  years  the  board  of  equaUzation 
has  made  no  headway  toward  an  adequate  classification  of  the 
corporations  subject  to  the  franchise  tax.  The  result  of  the  pres- 
ent methods  of  assessment  has  been  to  increase  the  proportionate 
burden  of  the  smaller  companies  and  to  distribute  the  tax  burden 
very  inequitably  among  different  classes  of  corporations. 

The  outcome  of  these  six  years  of  corporate  taxation  under  the 
amendment  of  1910  seems  therefore  to  be  a  very  unsatisfactory 
equalization  of  assessments  and  distribution  of  the  tax  burden. 
This  burden  is  not  properly  distributed  to  those  corporations  sub- 
ject to  the  franchise  tax;  the  legislative  adjustment  of  the  rates 
on  gross  earnings  is  a  very  rough  mode  of  equalization  between  the 
utilities  and  other  corporations;  and  no  provision  exists  for  an 
equalization  between  corporate  and  other  property  because  of  the 
lack  of  central  control  over  the  local  assessments  of  general  prop- 
erty. The  elimination  of  this  control  over  local  assessments  which 
was  involved  in  the  separation  of  the  sources  of  revenue  has  had 
very  unfortunate  results.  From  every  investigator,  and  from  the 
board  itself,  comes  the  testimony  that  these  assessments  are  very 
unequal  and  discriminatory.^  Some  means  must  be  provided  of 
bringing  local  assessments  to  a  fairly  uniform  basis  before  any 
thorough  readjustment  between  corporate  and  other  property  can 
occur.  The  state's  revenue  crisis  makes  this  equalization  very  nec- 
essary for  it  is  evident  that  some  one  must  pay  more  taxes,  and 

The  board  recently  defeated  an  effort  to  legislate  a  fixed  rule  of  franchise  valuation. 
Report,  1914,  pp.  16,  17. 

^  Cf.  the  discussion  of  California  tax  problems  at  the  Washington  tax  confer- 
ence, Taxation  in  Washington,  1914,  pp.  1 16-124;  ^i^d  at  the  National  Tax  Con- 
ference, 1914,  Proceedings,  pp.  105-107. 

"^  Report  of  the  California  State  Tax  Commission,  1917,  pp.  54-57. 

^  Cf.  ibid.,  pp.  250-253.  This  view  was  expressed  by  various  speakers  at  the 
National  Tax  Conference  of  191 5.  Cf.  Proceedings,  pp.  48,  64.  Cf.  also  California 
Tax  Association,  The  Tax  Problem  in  California. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT        99 

distribution  of  the  increase  cannot  justly  be  made  until  the  tax 
system  has  been  thoroughly  overhauled  and  more  effective  pro- 
visions introduced  for  securing  elasticity  of  revenue  and  equality 
of  tax  burden  among  various  classes  of  taxpayers.' 

The  revenue  emergency  has  brought  a  prompt  response.  The 
problem  was  first  attacked  by  the  State  Tax  Association,  an  un- 
ofl5cial  organization  called  into  existence  by  the  critical  condition 
of  the  pubhc  finances.  The  bulletins  published  by  this  association 
criticized  not  only  the  taxation  of  corporations,  but  the  whole  plan 
introduced  by  the  amendment  of  1910.  It  demonstrated  also  that 
separation  of  sources  had  stimulated  local  extravagance  and  that 
the  promised  reduction  of  tax  rates  for  local  purposes  had  not 
materialized. 2  Moreover,  separation  of  sources  had  not  prevented 
local  inequalities  though  it  had  promoted  indifference  to  state 
expenditures.^  The  state  board  of  equalization  had  faced  the 
problem  of  revenue  shortage  in  its  report  of  19 14  and  had  dis- 
cussed the  various  possible  new  sources  of  revenue.^  It  did  not, 
however,  go  to  the  root  of  the  matter  as  did  the  tax  association, 
which  recommended  a  sweeping  reorganization  of  the  tax  system. 
Among  the  specific  suggestions  advanced  by  this  association  were 
the  establishment  of  a  state  tax  commission  with  strong  supervi- 
sory powers  over  the  local  assessor,  a  full  value  assessment  with 
limitation  of  the  tax  rates,  provisions  for  greater  elasticity  in  the 
state  revenues  and  a  more  adequate  equalization  of  tax  burden 
between  the  properties  taxed  under  different  systems.^ 

The  new  special  tax  commission  created  in  1915  ®  has  just 

*  Controller  of  California,  Report,  1914,  pp.  11-18. 

^  Cf.  especially  the  bulletin,  The  Tax  Problems  of  California,  February,  1915. 
The  San  Francisco  tax  rates  have  been: 

igo8-09  State  and  Local $1.90  1912-13  Local  only $2.03 

1909-10      "       "         "     1.96  1913-14      "        "    2.20 

1910-11      "       "        "    2.00  1914-1S      "       ■    a.as 

1911-12  Local  only 2.00 

California  Tax  Association,  ibid.,  p.  4. 

'  Cf .  Bullock,  "  The  Separation  of  State  and  Local  Revenues,"  Quart.  Jour,  of 
Econ.,  xxiv,  pp.  437-458.  These  criticisms  of  separation  from  California  are  a 
significant  confirmation  of  Professor  Bullock's  objections  to  the  plan. 

*  California  State  Board  of  Equalization,  Report,  1914,  pp.  32-58. 

*  California  Tax  Association,  The  Tax  Problem  in  California. 
'  Established  by  Laws  of  California,  1915,  ch.  194. 


lOO  THE  STATE  TAX  COMMISSION 

issued  its  final  report,  and  again  the  amendment  of  1910  has  re- 
ceived very  severe  criticism.  Many  of  the  conclusions  reached  by 
the  state  tax  association  were  repeated  in  this  report.  The  docu- 
ment is  too  long  to  be  reviewed  here,  but  the  chief  impression 
from  reading  it  is  that  the  CaHfornia  revenue  system  should  go 
into  the  melting  pot.  The  recommendations  embody  proposals  for 
this  general  reorganization  of  the  tax  system  and  for  a  stronger 
central  administration  of  the  new  laws.^ 

State  Boards  of  Equalization  and  Assessment  in 
New  Jersey 

During  the  first  half  of  the  nineteenth  century  the  specific  prop- 
erty taxes  which  had  constituted  the  fiscal  system  of  New  Jersey 
during  the  colonial  period  had  been  expanding  into  the  fully  de- 
veloped general  property  tax,  an  evolution  which  was  completed 
in  185 1. 2  The  administrative  organization  throughout  this 
development  was  highly  decentralized.  A  direct  state  tax  had 
been  apportioned  among  the  counties  since  colonial  times,  and 
in  the  absence  of  equalization  competitive  undervaluation  had 
flourished.  Even  the  machinery  for  local  equalization  came  slowly. 
A  county  board  of  equahzation  was  provided  for  Mercer  county  in 
1846  and  for  Hudson  county  in  1873,  but  the  other  counties  re- 
mained without  such  boards  until  1883.^  State  equalization  was 
proposed  by  the  governor  in  185 1  ^  but  the  suggestion  was  un- 
heeded and  the  increasing  confusion  of  the  tax  system  led  to  a 
series  of  special  commissions  of  investigation.  The  first  of  these, 
reporting  in  1868,  failed  to  sense  the  fundamental  difficulty^  and 

1  Report  of  the  State  Tax  Commission  of  California,  191 7.  This  report  is  reviewed 
in  the  Bulletin  of  the  National  Tax  Association,  ii,  pp.  205,  206. 

The  board  of  equalization  anticipated  the  conclusions  of  the  special  tax  com- 
mission, in  its  report  of  1916,  by  a  weak  defense  of  the  present  tax  system.  The 
new  tax  system  —  that  of  1910  —  was  said  to  be  "  a  fine  revenue  producer,"  it  was 
"  working  smoothly,"  "  conditions  were  satisfactory,"  and  "  business  had  become 
adjusted  to  it."    Report,  pp.  13-15. 

2  Laws  of  New  Jersey,  1851,  p.  271.  This  evolution  is  traced  by  Mathews, 
"  Tax  Administration  in  New  Jersey,"  Jour,  of  Pol.  Econ.,  xx,  pp.  716-737. 

3  Laws  of  New  Jersey,  1846,  p.  46;   1873,  ch.  697;   1883,  ch.  144. 

*  Mathews,  loc.  cit.,  p.  729. 

*  These  reports  are  reviewed  by  Chapman,  op.  cit.,  pp.  506,  507.  They  have 
not  been  available  to  the  writer. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENi"       lOI 

recommended  increasing  the  severity  of  the  assessor's  oath.  A 
state  board  of  equahzation  was  proposed  by  the  commission 
of  1879  ^^d  again  by  the  commission  of  1890;  it  was  finally 
estabhshed  in  1891. 

Meantime  administrative  centralization  was  proceeding  in  the 
field  of  corporate  taxation.  The  usual  order  of  development  was 
reversed  in  New  Jersey  and  state  corporation  assessment  ante- 
dated state  equalization  by  some  years,  but  not  because  of  the 
greater  need  of  the  former.  The  administration  of  the  taxes  on 
corporations  will  accordingly  be  taken  up  first  in  this  review. 

State  Administration  of  Corporation  Taxes  —  The  State  Board  of 
Assessors.  —  During  the  early  period  of  railroad  building  in  New 
Jersey  it  had  been  the  practice  to  incorporate  railroad  companies 
by  special  act  and  to  include  the  tax  provisions  in  the  separate 
charters.  Railroads  were  brought  under  the  general  property  tax 
in  1851  and  continued  to  be  taxed  by  that  system  until  1873.  In 
this  year  the  policy  of  separating  the  main  stem  from  the  other 
railroad  property  was  introduced.^  The  latter  was  to  be  taxed  for 
local  purpose  at  one  per  cent  of  the  assessed  value;  the  former 
was  to  be  taxed  for  state  purposes  on  the  "  cost,  equipment,  and 
appendages  "  at  such  rate  as  had  been  fixed,  or  in  default  of  such 
a  rate,  at  one-half  per  cent.  A  railroad  commissiotier  was  pro- 
vided who  was  to  assess  the  property  used  for  railroad  purposes 
once  in  three  years.  In  1876  the  basis  of  assessment  of  the  main 
stem  was  changed  to  "  true  value,"  for  the  determination  of 
which  a  board  of  railroad  commissioners  was  created. ^  In  1884 
the  law  was  rewritten  and  the  foundations  of  the  present  system 
were  laid. 

The  act  of  1884  applied  to  railroad  and  canal  property,  which 
was  arranged  for  purposes  of  taxation  into  four  classes :  ^ 

I.  Main  stem,  including  the  roadbed  and  right  of  way  for  a  total  of  100 

feet  (for  waterways.it  included  the  towpath  and  berme  bank). 
II.  Real  estate  used  for  railway  and  canal  purposes,  other  than  the  main 
stem. 

III.  Tangible  personal  property. 

IV.  Franchise. 

'  Laws  of  New  Jersey,  1873,  ch.  450. 

'  Ibid.,  1876,  ch.  loi.  '  Ibid.,  1884,  ch.  loi. 


lOi  TffH:  STATE  TAX  COMMISSION 

By  an  amendment  of  1888  the  title  of  the  fourth  class  was  changed 
to  "  the  remainuig  property  including  the  franchise."^  These 
four  classes  of  property  were  to  be  valued  by  the  state  board  of 
assessors,  a  new  administrative  board  estabHshed  by  the  act, 
composed  of  four  members  appointed  by  the  governor  with  the 
approval  of  the  senate.  The  state  tax  of  one-half  per  cent  was  to 
be  levied  on  the  valuation  as  determined  by  the  state  assessors 
and  in  addition  the  local  taxes  were  to  be  imposed  on  the  property 
of  class  II,  though  in  no  case  was  the  total  rate  on  this  class  to 
exceed  i|  per  cent.  The  board  of  assessors  was  also  placed  in 
charge  of  the  franchise  taxes  laid  upon  the  stocks  of  other  corpora- 
tions in  1884,  and  some  additional  duties  were  added  later. 

The  short  time  available  for  making  the  first  valuation  led  the 
board  to  take  advantage  of  the  authorization  to  make  a  survey  of 
the  properties  if  dissatisfied  with  the  results  otherwise  obtained. ^ 
This  expedient  doubtless  influenced  the  board's  subsequent 
method,  which  has  been  that  of  physical  valuation  supplemented 
rather  inadequately  by  data  relative  to  earning  capacity.  The 
valuations  were  vigorously  contested  by  the  corporations  in  com- 
plaints before  the  board  sitting  in  review  of  its  own  assessments 
and  before  the  courts.  The  law  and  the  board's  methods  were 
both  sustained  in  the  judicial  reviews.^  The  complaints  to  the 
board  may  be  arranged  in  four  classes,  as  follows:  ^ 

I.  Complaints  that  corporate  property  had  been  overvalued  in 
comparison  with  other  property.  Special  attention  was  given  to 
such  appeals  and  efforts  were  made  to  equalize  the  property  in 
class  II  to  the  same  proportion  of  full  value  as  the  property  locally 
assessed.^  In  the  absence  of  adequate  means  for  ascertaining  the 
basis  of  local  assessments,  however,  this  equalization  could  not 
have  been  properly  made.  A  long  struggle  has  been  waged 
between  the  taxing  districts,  especially  the  cities,  and  the  corpo- 
rate interests  over  the  question  of  relative  tax  burden.  The  board 
of  assessors  was  originally  of  the  opinion  that  the  railroads  were 

*  Laws  of  New  Jersey,  1888,  ch.  208. 
^  Ibid.,  1884,  ch.  loi,  §  20. 

*  Central  Railroad  of  New  Jersey  v.  State  Board  of  Assessors,  19  Vroom,  146. 

*  New  Jersey  State  Board  of  Assessors,  Report,  1884,  pp.  22  ff. 

*  Ibid.,  1886,  pp.  33  ff. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      IO3 

paying  proportionally  more  taxes  than  any  other  class  of  prop- 
erty in  the  state  but  this  view  has  not  been  generally  accepted. 
On  the  contrary,  much  of  the  later  agitation  over  tax  reform  was 
inspired  by  the  desire  to  increase  the  railroad  taxes. ^ 

2.  Exemptions  were  claimed  under  former  contracts  with  the 
state,  especially  the  older  corporate  charters.  The  board  claimed 
the  power  to  determine  whether  any  property  was  by  contract 
beyond  the  power  of  the  state  to  tax  and  it  held  that  all  property 
was  taxable  in  the  absence  of  court  decisions  rendering  it  exempt. 

3.  Complaints  that  the  act  was  unconstitutional.  These  were 
referred  in  toto  to  the  courts  where  the  law  was  fully  upheld. 

4.  Improper  valuation  of  the  franchise.  This  Hne  of  objection 
formed  the  last  stand  of  the  corporations  in  contesting  the  appli- 
cability of  the  act.  In  the  leading  case  the  board  gave  its  rule  for 
franchise  valuation,  which  may  be  summarized  as  follows:  ^ 
Deduct  the  total  value  of  the  tangible  corporate  property  from  the 
total  value  of  the  stocks  and  bonds,  and  take  60  per  cent  of  the 
remainder  as  the  value  of  the  franchise.  If  the  tangible  property 
exceed  the  value  of  the  stocks  and  bonds,  20  per  cent  of  the  gross 
earnings  should  be  taken  as  the  value  of  the  franchise.  The  court 
refused  to  express  an  opinion  upon  the  board's  formula  for  fran- 
chise valuation,  declaring  that  its  only  concern  was  whether  the 
property,  including  the  franchise,  had  been  put  at  its  true  value. 
It  added : 

.  .  .  there  is  a  salable  value  in  railroads  that  carry  on  a  profitable  busi- 
ness that  is  far  beyond  the  naked  value  of  the  real  and  tangible  property 
used  for  railroad  purposes,  .  .  .  and  it  does  no  harm  to  anyone  to  call  such 
additional  value,  or  some  part  of  it,  the  franchise. 

The  court's  impatience  with  matters  of  definition  and  method  is 
hardly  in  keeping  with  its  concern  that  these  corporations  be 
taxed  upon  their  whole  taxable  capacity.  As  many  commissions 
have  since  learned,  the  proper  appraisal  of  the  "  salable  value  " 
of  prosperous  railroads  in  excess  of  the  tangible  property  is  by  no 

^  a.  Report  of  the  Special  Tax  Commission  oj  New  Jersey,  1897,  pp.  12,  64.  Also, 
ibid.,  1905,  p.  117.  Cf.  also  New  Jersey  State  Board  of  Assessors,  Report,  1884, 
p.  42. 

*  19  Vroom,  146;  also,  21  Vroom,  1,  and  New  Jersey  State  Board  of  Assessors, 
Report,  1886,  pp.  8,  9. 


I04  THE  STATE  TAX  COMMISSION 

means  an  easy  matter  and  questions  of  method  of  valuation  have 
become  of  the  greatest  importance.  The  amendment  of  1888 
lessened  the  significance  of  the  franchise  as  such  but  it  did  not 
hghten  the  task  of  valuing  the  property  in  Class  IV. 

Central  administration  of  railroad  taxes  so  increased  their  yield 
that  the  direct  state  tax  was  abolished  after  1884,  except  for 
school  purposes.^  In  order  to  increase  their  sources  of  revenue,  the 
cities  possessing  the  immense  terminal  facilities  secured,  in  1897, 
a  relinquishment  of  the  taxes  on  second  class  property  to  the  dis- 
tricts wherein  this  property  was  located. ^  In  1906  the  assessment 
of  second  class  property  was  transferred  to  the  local  assessors  but 
the  act  was  held  unconstitutional  and  the  legislature  ordered  the 
board  of  assessors  to  reassess  such  property  for  1906  and  1907.^ 
This  brief  attempt  at  administrative  decentralization  was  thus 
checked  before  it  really  became  effective  but  there  can  be  little 
question  of  the  greater  fitness  of  the  state  board  for  the  task  of 
valuation,  even  though  it  may  be  conceded  that  a  part  or  the 
whole  of  the  taxes  on  property  of  a  definitely  localized  character 
should  be  surrendered  to  the  local  units.*  At  this  time  also  the 
rate  applied  to  Classes  I,  III,  and  IV  was  changed  from  one-half 
per  cent  to  the  average  rate  for  the  state. ^  This  increased  the 
receipts  materially  but  the  excess  above  one-half  per  cent  was 
devoted  to  the  public  schools.^  Notwithstanding  these  modifica- 
tions the  feeling  continued  that  these  corporations  were  inade- 
quately taxed  and  in  1909  the  legislature  created  a  special 
commission  to  reappraise  all  railroad  and  canal  property  at  its 
true  value.  This  commission,  which  reported  in  191 1,  advanced 
the  valuations  materially  as  the  following  comparative  figures  for 
the  assessment  of  1910  and  the  revaluation  of  191 1  show:  ^ 

1  Report  of  the  Special  Tax  Commission  of  New  Jersey,  1905,  p.  32. 

2  Laws  of  New  Jersey,  1897,  ch.  69.  Also,  Report  of  the  Special  Tax  Commis- 
sion of  New  Jersey,  1897,  pp.  5,  13-15. 

'  The  special  tax  commission  of  1905  proposed  to  retain  central  assessment, 
though  it  favored  local  distribution  of  the  taxes  on  classes  II  and  III. 

*  Cf.  below,  ch.  8,  on  the  policy  of  Wisconsin. 
^  Laws  of  New  Jersey,  1906,  ch.  82. 

*  New  Jersey  State  Board  of  Assessors,  Report,  1908,  Part  I,  p.  9. 

'  C.  F.  Hansel,  Report  on  the  Revaluation  of  Railroads  and  Canals  in  New  Jersey, 
p.  168. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      105 


Comparison  of  Railroad  Valuation  by  Board  of  Assessors  and  Revaluation 
Commission  (millions) 


Year 

Class  I 
Main  stem 

Class  II 

Other  real 
estate 

Class  III 
Tangible 
personal 
property 

Class  IV 
Other  prop- 
erty includ- 
ing franchise 

Totals 

Assessment  19 10 

Revaluation  1911 

Increases 

$130.2 

132. 1 

1.9 

$73-6 
89.7 
16.1 

$31. $ 
76.1 
44.9 

$51.6 
76.9 
25-3 

$286.5 

374-8 

88.2 

The  comparison  indicates  that  the  state  assessors  had  been  most 
effective  in  their  assessment  of  the  main  stem,  the  valuation  of 
which  was  increased  less  than  $2,000,000  in  the  special  appraisal. 
On  the  other  hand,  the  heavy  increases  made  especially  in 
Classes  III  and  IV  reveal  the  weakness  of  the  methods  formerly 
pursued.  The  state  assessors  are  here  seen  to  be  following  the 
trail  of  the  local  assessors  by  attaining  a  much  higher  percentage 
of  full  value  in  the  case  of  real  estate  than  in  the  case  of  personal 
and  intangible  property.  One  explanation  of  this  fact  is  to  be 
found  in  the  inadequate  character  of  the  reports  required  from  the 
corporations.  Their  inadequacy  is  clearly  seen  from  the  following 
criticisms  offered  by  the  valuation  commission :  ^ 

The  state  does  not  require  the  railroads  to  furnish  statements  of  car 
miles,  or  of  the  time  that  rolling  stock  equipment  is  in  the  state.  .  .  . 

Reports  are  made  to  the  comptroller  under  an  ancient  act  of  1852, 
amended  in  1873.  This  act  calls  for  a  brief  statement  of  income  under  three 
headings:  "  Passenger,"  "  Freight,"  and  "  Other  Sources  ";  also  for  a  state- 
ment of  expenditures  under  the  titles:  "  Repairs,"  "  Maintenance  of  Way," 
"  Motive  Power,"  and  "  Contingencies." 

There  is  no  analysis  of  these  reports,  and  there  is  no  means  of  knowing 
whether  betterments  and  additions  are  included  in  "  Expenditures." 

Since  all  of  the  railroad  systems  are  interstate  roads,  there  is  nothing  to 
show  what  the  earnings  and  expenses  are  in  the  state. 

These  data  are  in  sharp  contrast  to  the  detailed  physical  survey  of 
Class  I,  which  had  been  made  by  a  thoroughly  organized  engineer- 
ing staff  and  there  is  little  wonder  that  the  results  obtained  from 
methods  so  antiquated  have  been  keenly  criticized.    For  the 

*  C.  F.  Hansel,  Report  on  the  Revaluation  of  Railroads  and  Canals  in  New  Jersey, 
pp.  169, 170. 


I06  THE  STATE  TAX  COMMISSION 

appraisal  of  Class  IV  the  special  commission  employed  the  for- 
mula developed  by  Professor  H.  C.  Adams  in  the  Michigan  rail- 
road appraisal  of  1901,  with  some  modifications  chief  of  which 
was  the  allowance  of  5^  per  cent  instead  of  4  per  cent  on  the 
investment.^ 

The  state  board  of  assessors  has  also  been  required  to  admin- 
ister various  other  corporation  taxes  which  have  been  added  from 
time  to  time.  In  1884  a  franchise  tax  was  imposed  upon  the  stock 
of  corporations  organized  under  New  Jersey  laws.^  The  example 
set  by  the  New  York  special  franchise  tax  was  followed  in  1900  in 
an  act  levying  a  tax  on  the  gross  receipts  of  all  corporations 
occupying  or  making  use  of  the  streets  and  pubHc  highways.  The 
proceeds  of  this  tax  were  to  be  distributed  among  the  taxing  dis- 
tricts in  proportion  to  the  value  of  the  property  located  in  or  upon 
the  highways  of  each  district.  Since  the  amount  of  tax  appor- 
tioned to  any  district  was  made  dependent  upon  the  local  valua- 
tion of  corporate  property,  it  was  necessary  for  the  state  assessors 
to  equalize  and  revise  the  local  assessments  of  special  franchises. 
This  was  really  a  conflict  of  jurisdiction  with  the  board  of  equali- 
zation, but  neither  state  board  was  able  to  influence  materially 
the  course  of  local  assessments.  The  logical  amalgamation  oc- 
curred in  191 5,  when  the  state  board  of  assessors  was  combined 
with  the  state  board  of  equalization.^ 

State  Board  of  Taxation.  —  Proposals  for  a  state  board  of 
equahzation  in  New  Jersey  date  at  least  to  185 1,  as  has  been 
shown  above.^  The  special  tax  commission  of  1880  had  suggested 
that  the  county  assessors  which  it  proposed  to  create  be  consti- 
tuted a  state  board  of  equalization.^  This  device,  which  was  not 
adopted,  would  have  been  practically  worthless  as  experience  has 
conclusively  condemned  the  ex  officio  board.  The  special  tax  com- 
mission of  1890  renewed  the  proposal  for  state  equalization  and  in 
1 89 1  the  state  board  of  taxation  was  established  "  for  the  equali- 

1  Hansel,  op.  cit.,  pp.  43-61. 

*  New  Jersey  State  Board  of  Assessors,  Report,  1884,  p.  g. 

'  Laws  of  New  Jersey,  1915,  ch.  244.  This  had  been  recommended  bv  the 
special  commission  of  191 2.    Cf.  Report,  pp.  30-42. 

*  Cf.  above,  pp.  100,  loi. 

^  Chapman,  op.  cit.,  pp.  55-57. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      I07 

zation,  revision  and  enforcement  of  taxation."  *  This  board  was 
composed  of  three  members  appointed  by  the  governor  for  five 
years  at  a  salary  of  $2,500.  The  number  was  increased  to  four  in 
1894,  of  whom  not  more  than  two  were  to  be  appointed  from  any 
one  party.  In  1905  the  law  was  rewritten  and  the  state  board  of 
taxation  was  supplanted  by  the  board  for  the  equahzation  of  taxes.^ 

The  state  board  of  taxation  was  given  the  usual  powers  of  call- 
ing witnesses,  compelling  the  production  of  books  and  papers, 
and  taking  testimony  under  oath.  It  was  empowered  to  review 
and  correct,  by  reduction,  any  local  assessment  upon  verified  and 
sworn  complaint  of  grievance;  and,  in  its  discretion,  to  order  the 
assessors  to  value  land  and  improvements  separately.  It  was 
also  required  to  investigate  the  methods  adopted  by  the  local 
assessors  in  the  assessment  of  real  and  personal  property,  to  ex- 
amine cases  of  alleged  evasion,  and  to  make  to  the  legislature  such 
recommendations  as  should  appear  to  be  proper. 

The  practices  and  influences  typical  of  decentralized  conditions 
were  found  to  be  prevalent  among  the  local  assessors  who  had 
been  copying  the  rolls  of  former  years,  failing  to  make  adequate 
study  of  the  properties  in  their  districts,  and  yielding  in  various 
ways  to  local  influences.  Similarly,  the  county  boards  of  review, 
composed  of  the  assessors  acting  as  a  body,  were  often  divided  by 
politics,  by  local  jealousies,  and  by  the  dishonesty  of  some  asses- 
sors. Their  reviews  were  hasty  and  inefficient  and  the  practice  of 
reducing  every  valuation  appealed  was  common.^  On  the  other 
hand  the  tax  law  was  confused  and  uncertain,  there  was  great 
diversity  of  procedure  in  different  counties,  and  the  local  tax  rates 
revealed  extreme  variations  in  the  basis  of  assessment.*    From 

*  Laws  of  New  Jersey,  1891,  ch.  114. 

^  Ibid.,  1894,  ch.  271;  ibid.,  1905,  ch.  67. 

'  New  Jersey  State  Board  of  Taxation,  Report,  1891,  p.  13.  Unlawful  coalitions 
of  assessors  were  often  formed  for  the  purpose  of  securing  a  majority  on  the  county 
boards  and  approving  improper  lists.  It  was  a  usual  thing  for  the  assessors  to 
prepare  several  lists  and  submit  the  lowest  that  the  board  would  accept.  Cf.  21 
Vroom,  50  —  a  case  in  which  eight  out  of  nine  assessors  reported  lower  values  than 
the  totals  of  their  duplicates,  while  the  township  of  the  ninth  assessor  was  increased 
by  the  board,  over  the  protests  of  this  assessor  and  in  violation  of  law. 

*  In  1890  the  tax  rates  had  ranged  from  $0.74  to  $4.70.  New  Jersey  State 
Board  of  Taxation,  Report,  1891,  pp.  16-19. 


Io8  THE  STATE  TAX  COMMISSION 

every  point  of  view  there  was  sore  need  of  a  central  authority  with 
sufficient  power  to  reduce  these  confused  and  disorganized  parts 
to  some  semblance  of  order.  Though  no  tax  for  state  purposes  had 
been  levied  since  1884  the  system  of  redistributing  that  portion  of 
the  state  school  tax  known  as  the  "  Reserve  Fund,"  amounting  to 
10  per  cent  of  the  total,  was  provocative  of  the  same  spirit  of  com- 
petitive undervaluation  as  the  direct  state  tax  had  produced  in 
other  states.^  Public  sentiment  approved  the  sharp  practices  of 
the  assessors  and  even  demanded  them.  One  newspaper  in  the 
state  remarked,  after  an  assessor  had  done  his  duty,  "  We  want  an 
assessor  who  is  sharp  enough  to  take  care  of  his  constituents."  ^ 

The  state  board  of  taxation  was  created  primarily  to  introduce 
greater  equahty  in  the  assessment  of  property,  but  the  powers 
given  it  were  really  very  inadequate  to  secure  this  end.  Its  only 
opportunity  of  action  was  through  the  appeals  which  might  be 
brought  before  it.  There  was  no  authority  to  initiate  action  or 
even  inquiry  into  conditions. 

The  appeals  were  of  three  principal  classes.^  The  first  and  most 
important  class  consisted  of  those  appeals  brought  by  one  or  more 
taxing  districts  against  another  or  others  in  the  same  county.  The 
method  developed  for  deahng  with  such  cases  was  thus  described 
in  1891: ^ 

Multiply  the  assessed  valuation  of  each  district  by  the  amount  of  per- 
centage less  true  value,  which  each  taxing  district  has  been  assessed,  thus 
giving  the  corrected  valuation,  or  true  value  of  each  district ;  add  these  and 
divide  by  the  sum  total  of  county  and  State  school  tax  each  district  was 
required  to  raise  under  the  valuation  as  actually  assessed;  the  result,  mul- 
tiplied by  the  corrected  or  increased  valuations,  will  give  the  equalized  or 
just  amount  of  county  and  State  school  tax  required  of  each  district. 

1  Cf.  History  of  the  school  funds  in  New  Jersey  State  Board  of  Taxation,  Re- 
port, 1893,  pp.  41-56.  The  state  charged  five  dollars  for  each  child  of  school  age 
and  spread  the  total  over  the  assessed  value  of  property.  Of  this  tax  90  per  cent 
was  returned  at  once  to  the  district  that  paid  it  and  the  remaining  10  per  cent, 
known  as  the  "  Reserve  Fund,"  was  apportioned  "  equitably  and  justly  "  by  the 
state  board  of  education.  The  undervalued  counties  contributed  less  to  the  total 
and  the  methods  of  apportionment  used  by  the  board  of  education  often  favored 
these  counties  in  the  distribution  of  the  reserve. 

*  Ibid.,  1891,  p.  18. 

3  Ibid:,  p.  68. 

"  Ibid.,  p.  69. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT       I09 

This  procedure  was  further  described  and  the  method  of  compiling 
the  data  more  fully  detailed  in  a  set  of  instructions  which  was  is- 
sued to  the  tax  districts  in  1896,  relative  to  the  manner  of  making 
an  appeal  to  the  board. ^  After  outlining  the  formal  steps  in  the 
process  of  appeal,  the  locahties  were  instructed  to  verify  the  fig- 
ures of  assessed  value  and  apportioned  tax  and  then  to  ascertain 

.  .  .  the  percentage  of  valuation  which  the  amount  of  property  returned 
by  the  assessor  of  each  taxing  district,  as  shown  by  the  dupHcate,  bears  to 
the  true  value  of  all  the  property  of  each  district.  .  .  .  this  percentage  is 
easily  and  readily  shown  by  a  comparison  of  the  assessed  valuation  of  in- 
dividual pieces  of  property  with  their  ascertained  or  cash  value. 

No  intimation  is  given  of  the  weight  that  the  board  would 
attach  to  data  thus  prepared  by  the  complainant  districts.  The 
use  of  such  careful  instructions  suggests  that  data  compiled  in 
accordance  with  them  would  have  been  accepted,  with  a  possible 
verification  to  eliminate  errors  of  a  clerical  sort.  The  sUght  regard 
entertained  by  the  board  for  the  difiiculties  encountered  in  pre- 
paring accurate  percentages  of  assessed  to  true  value  lends  sup- 
port to  this  view  but  the  experience  of  Wisconsin  and  some  other 
states  has  shown  that  the  compilation  of  satisfactory  ratios  has 
been  by  no  means  an  easy  matter.^ 

Notwithstanding  possible  defects  in  the  preparation  of  ratios, 
the  equalizations  effected  through  these  appeals  promoted  some- 
what greater  equality  of  tax  burden  than  had  previously  pre- 
vailed. The  board  fortunately  took  vigorous  action  in  an  early 
appeal  case  and  the  moral  effect  was  felt  throughout  the  state.  In 
this  case  Camden  county  was  increased  in  1891  by  $4,809,661,  or 
about  17  per  cent,  and  the  board  stated  that  its  action  had  broken 
up  almost  completely,  in  nearly  every  county,  the  vicious  and 
fraudulent  practice  of  undervaluation.^  This  sweeping  assertion  is 
unconvincing,  but  the  improvement  is  evidenced  by  the  appor- 
tionments of  the  "  Reserve  Fund."  In  1892  an  excess  of  $9,373 
was  distributed  to  two  counties,  whereas  in  1891,  five  counties  had 
been  beneficiaries  to  the  extent  of  $24,495.* 

1  New  Jersey  State  Board  of  Taxation,  Report,  1896,  pp.  143,  144. 

2  Cf.  below,  ch.  8. 

'  New  Jersey  State  Board  of  Taxation,  Report,  1891,  p.  42;  ibid.,  1892,  p.  16. 
*  Ibid.,  1892,  pp.  74-76. 


no  THE  STATE  TAX  COMMISSION 

On  the  other  hand,  it  is  doubtful  if  the  general  level  of  assess- 
ments was  greatly  affected  by  the  appeal  of  one  district  against 
another.  The  board's  statements  were  somewhat  contradictory. 
In  1897  it  admitted  that  the  state  was  not  then  assessed,  on  the 
average,  at  65  per  cent  of  full  value. ^  Two  years  later  a  list  was 
published  containing  eleven  counties  in  which,  with  certain  excep- 
tions, all  property  was  said  to  be  assessed  at  full  value.^  Seven  of 
the  eleven  counties  were  mainly  agricultural,  three  were  partly 
seashore  and  partly  agricultural,  and  one  was  largely  urban.  This 
showing  loses  most  of  its  point  when  the  character  of  the  excep- 
tions is  considered.  These  included  most  of  the  cities,  leaving 
only  the  agricultural  and  summer  resort  property  for  which  full 
value  was  really  claimed.  Farm  lands  have  usually  been  better 
assessed  than  city  real  estate,  and  the  seashore  properties,  espe- 
cially when  owned  by  non-residents,  were  likely  to  be  fully 
assessed.  Further,  there  is  no  assurance  that  the  assessment  of 
personal  property  was  uniform  even  in  the  purely  agricultural 
counties.  In  such  counties,  in  which  the  prevailing  forms  of 
wealth  are  of  the  same  general  character,  there  should  be  a  fairly 
uniform  relation  of  the  value  of  the  personal  property  to  the  value 
of  the  real  property;  at  least,  there  should  not  be  wide  variations, 
and  if  these  are  found  they  form  presumptive  evidence  of  inequal- 
ity of  assessment.  Excluding  such  portions  of  the  agricultural 
counties  as  were  admitted  to  be  underassessed,  the  percentage  of 
personal  to  total  assessment  varied  from  22.9  per  cent  to  35.3  per 
cent,  entirely  too  wide  a  range  to  substantiate  the  claim  of  uni- 
form assessment  of  all  personal  property  in  these  counties.  The 
board  attempted  to  explain  the  low  assessment  of  personal  prop- 
erty by  referring  to  the  large  amount  of  exempt  personalty,  and 
even  asserted  that  as  much  as  90  per  cent  of  this  class  had  been 
exempted.^  No  data  were  presented  to  support  this  estimate  and 
it  is  entirely  too  high  to  accept  without  strong  substantiating  evi- 
dence. The  explanation  is  unsatisfactory,  also,  without  proof 
that  there  were  considerable  variations  in  the  proportion  of 
exempt  to  total  personalty  in  different  counties. 

^  New  Jersey  State  Board  of  Taxation,  Report,  1897,  p.  40. 
2  Ibid.,  1899,  pp.  35  ff.  ^  Ibid.,  1900,  p.  17. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      1 1 1 

Equalization  by  appeal  had  the  further  difficulty  of  being  con- 
fined to  the  districts  of  a  county,  and  previous  to  1898  there  was  no 
way  of  adjusting  grievances  between  counties.  In  that  year  coun- 
ties were  given  the  right  to  appeal  against  other  districts  or  coun- 
ties which  were  practicing  undervaluation. ^  An  early  case  under 
this  act  illustrates  the  method  used  in  dealing  with  such  appeals.^ 
Somerset  county  appealed  against  Ocean  county  and  the  board 
conducted  a  review  of  the  latter.  It  held  that  substantially  all  of 
the  property  in  Ocean  county  had  been  Usted  and  had  been  valued 
at  substantially  full  value.  This  decision  was  based  partly  upon 
the  testimony  of  the  assessors,  who  were  at  best  prejudiced  wit- 
nesses since  an  admission  of  undervaluation  would  have  been  a 
confession  of  official  misconduct.  Moreover,  if  valuations  were 
raised,  the  county  stood  to  lose  a  part  or  all  of  the  $53,000  which 
it  was  then  receiving  from  the  school  fund.  The  board  also  col- 
lected some  information  through  a  personal  inspection  of  some 
of  the  property  in  the  county,  though  there  is  no  statement  of  the 
proportion  of  the  total  that  was  \dewed  in  this  sampling  process. 
And  finally,  the  board  rehed  upon  the  fact  that  the  assessment  of 
Ocean  county  had  been  largely  increased  over  the  preceding  year, 
a  fact  that  was  of  no  value  whatever  to  prove  either  that  all  prop- 
erty had  been  fisted  or  that  it  had  been  assessed  at  full  value  in 
1898.^  On  the  contrary,  it  had  been  brought  out  in  an  appeal  from 
the  town  of  Beach  Haven  in  Ocean  county,  in  1896,  that  the  town 
assessors,  with  the  approval  of  the  borough  council,  had  used  33^ 
per  cent  as  the  basis  of  assessment  and  the  twenty-three  appel- 
lants in  this  case  were  aggrieved  at  being  assessed  somewhat 
higher.  The  board  was  convinced  of  the  soundness  of  their  claims, 
but  left  them  in  statu  quo  since  part  of  the  taxes  levied  on  the 
original  assessments  had  already  been  paid.*  It  is  exceedingly 
doubtful  if  all  assessments  had  been  advanced  from  this  level  to 
100  per  cent  of  full  value  in  two  years. 

Further  evidence  against  the  assertion  that  full  value  had  been 
attained  anywhere  in  the  state  was  produced  by  the  special  com- 

1  Laws  of  New  Jersey,  1898,  ch.  63. 

2  New  Jersey  State  Board  of  Taxation,  Report,  1898,  p.  21. 

'  Ibid.  *  Ibid.,  1896,  pp.  39,  40. 


112  THE  STATE  TAX  COMMISSION 

mission  appointed  by  Governor  Griggs  in  1897  to  investigate  the 
cities'  complaint  that  the  railroads  were  not  being  suflSciently 
taxed.  This  commission  found  that  railroad  real  estate  was  as- 
sessed at  full  value,  but  that  all  other  taxable  real  estate  was 
assessed  at  50  per  cent  to  65  per  cent  of  full  value,  while  almost 
all  personal  property  (except  that  of  railroads)  escaped  taxation, 
"  and  Httle  official  effort  seemed  made  to  reach  it."  On  the  aver- 
age personal  property  was  said  to  be  assessed  at  about  20  per  cent 
of  full  value.^ 

The  second  class  of  appeals  before  the  board  involved  the 
assessment  of  the  property  of  an  individual  or  a  corporation  above 
its  true  value.  Since  the  board  had  from  the  beginning  possessed 
the  power  to  review  and  reduce  individual  assessments  when 
overvalued,  these  cases  never  occasioned  serious  difficulty. ^ 

The  third  class  of  appeals  included  complaints  from  individuals 
and  corporations  that  they  had  been  assessed,  not  above  full 
value,  but  above  the  average  of  other  property  in  the  same  dis- 
trict.^ Previous  to  1891  there  had  been  no  remedy  for  this  griev- 
ance, since  the  courts  had  held  in  numerous  cases  that  relative 
over-assessment  constituted  no  valid  ground  for  judicial  relief  as 
long  as  the  property  of  the  complainant  was  not  absolutely  over- 
valued.* The  board  soon  discovered  that  in  order  to  deal  ade- 
quately with  this  class  of  cases  the  power  to  raise  individual 
assessments  was  essential  if  the  correction  were  not  always  to 
counteract  other  efforts  toward  full  valuation.^  After  much  urg- 
ing the  legislature  amended  the  law  in  this  particular  in  1894,  but 
the  board  never  made  more  than  a  very  conservative  use  of  the 
additional  authority. 

The  cause  of  proper  equalization  in  New  Jersey  has  been  greatly 
delayed  by  the  curious  restriction  of  the  board's  jurisdiction  to 
appeal  cases.    Governor  Stokes,  in  his  inaugural  message  of  1904, 

1  Report  of  the  Special  Tax  Commission  of  New  Jersey,  1897,  p.  64,  especially 
the  minority  report  of  Mr.  Black,  who  had  served  on  the  State  Board  of  Taxation. 
^  New  Jersey  State  Board  of  Taxation,  Report,  1891,  p.  68. 
3  Ibid. 

*  Ibid.,  also,  21  Vroom,  50. 

*  New  Jersey  State  Board  of  Taxation,  Report,  1891,  pp.  68,  71,  72;  also,  ibid., 
1894,  p.  22. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      II3 

declared  that  competitive  undervaluation  still  existed  notwith- 
standing the  fact  that  the  number  of  counties  receiving  more  from 
the  school  fund  than  they  contributed  had  been  lessened  during 
the  board's  existence.^  His  suggestion  for  dealing  with  the  prob- 
lem was  an  "  equalization  court."  The  form  of  the  suggestion  was 
unfortunate,  for  the  idea  of  a  court  had  been  at  the  bottom  of 
much  of  the  mischief  in  the  past.  The  board  itself  confessed  some- 
what ruefully  that  it  had  become  much  more  of  a  judicial  than  an 
administrative  body  and  admitted  its  virtual  failure  in  duties  of 
the  latter  sort.-  Considering  the  nature  of  its  authority  such  a 
result  is  not  strange,  though  it  is  regrettable,  for  the  process  of 
equalization  is  essentially  administrative  in  character  and  de- 
mands above  all  the  exercise  of  initiative.  This  restriction  of  the 
board's  authority  has  confined  action  to  the  most  intolerable 
cases.  The  board  endeavored  to  make  the  procedure  of  appeal 
as  simple  and  as  free  from  technicalities  as  possible  and  en- 
couraged resort  to  it  by  appointing  sessions  to  be  held  in  each 
county. 

The  original  act  provided  that  the  board,  at  its  discretion,  might 
order  the  assessor  to  separate  the  assessment  of  lands  and  im- 
provements as  a  means  of  bettering  the  assessment  of  real  prop- 
erty. Such  a  rule  was  promulgated  in  March,  1892,  for  all  cities 
of  the  first  and  second  classes,  some  twelve  in  number.^  In  1903 
seven  of  these  cities  had  not  yet  begim  to  separate  lands  and  im- 
provements, "  there  always  being  some  reason  why  it  could  not 
conveniently  be  done  in  those  places."  *  The  weakness  of  the 
board  is  nowhere  better  illustrated.  Instead  of  enforcing  a  rule 
which  it  was  especially  authorized  to  adopt,  the  legislature 
was  asked  to  enact  the  rule  into  law.  It  was  not  yet  in 
universal  use  in  1914.^  The  desultory  and  dilatory  policy,  of 
which  this  episode  is  an  example,  was  due  primarily  to  the  pecuUar 
limitations  upon  the  board's  authority.  It  was  due  also  to  the 
fact  that  the  pioneer  educational  work  had  been,  in  New  Jersey, 
as  elsewhere,  a  slow  and  difficult  task.   Credit  should  be  given  the 

*  Legislative  Documents,  1904,  i,  pp.  10-12. 

*  New  Jersey  State  Board  of  Taxation,  Report,  1897,  p.  9. 
'  Ibid.,  1892,  pp.  25,  26.  *  Ibid.,  1903,  p.  20. 

'  New  Jersey  State  Board  of  Equalization,  Report,  19 14,  pp.  21,  22. 


114  THE  STATE  TAX  COMMISSION 

board  for  demonstrating  the  serious  inequality  of  the  old  system 
and  for  effecting  considerable  improvement  over  the  earlier 
conditions. 

The  demand  for  a  more  efficient  administrative  control  of  the 
tax  system  was  whetted  both  by  the  things  accomplished  and 
those  left  undone.  The  first  step  was  the  creation  of  a  special 
investigating  commission  in  1904  with  instructions  to  "  investi- 
gate the  whole  subject  of  the  assessment  and  taxation  of  property 
in  this  state,  real, personal, and  corporate."  Though  these  instruc- 
tions covered  the  entire  field,  attention  was  directed  chiefly  to 
railroad  and  canal  taxation  because  of  the  general  interest  in  this 
particular  topic. ^  The  wide  differences  between  the  standards  of 
the  local  assessors  and  those  of  the  state  board  of  assessors  ren- 
dered imperative  an  extension  of  central  authority  over  the  local 
assessment  process  and  to  this  end  the  reorganization  of  the  state 
board  of  taxation  was  recommend ed.^  Instead  of  investing  the 
new  board  with  the  formal  characteristics  of  a  court,  as  Governor 
Stokes  had  suggested,  the  special  commission  advised  that  it 
should  be  organized  as  a  board  or  commission  with  more  effective 
executive  powers.^  The  law  was  accordingly  rewritten  and  a  new 
"  State  Board  of  Equalization  of  Taxes  "  was  estabHshed.*  It  was 
composed  of  five  members,  to  be  chosen  for  five  years  by  the 
governor  with  the  consent  of  the  senate.  The  president  of  the 
board,  who  was  to  be  a  counsellor-at-law,  was  to  receive  an  annual 
salary  of  $5000,  and  each  of  the  associates  $3500. 

The  State  Board  of  Equalization  of  Taxes.  —  The  powers  and 
duties  of  the  new  board  were  chiefly  corrective  and  supervisory  in 
character,  despite  the  changes  in  the  law.  The  official  title  to  the 
contrary  notwithstanding,  no  direct  equalization  was  to  be  per- 
formed among  districts  or  classes  of  property;  nor  was  the  board 
given  power  of  original  assessment  over  any  classes  of  property. 
EquaHzation  between  districts  or  counties  was  to  be  conducted 
upon  appeal.  The  board  was  further  required  to  investigate  the 
methods  of  the  assessors,  to  furnish  information  to  them,  and  to 

^  Report  of  the  Special  Tax  Commission  of  New  Jersey,  1905,  pp.  3,  4. 

*  Ibid.,  p.  35.  *  Ibid.,  pp.  34,  35- 

*  Laws  of  New  Jersey,  1905,  ch.  67. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      II5 

recommend  such  new  legislation  as  would  diminish  the  evasion  of 
taxes  or  effect  other  improvements.  The  most  significant  super- 
visory authority  was  that  of  ordering  or  conducting  a  reassess- 
ment whenever  such  action  appeared  necessary.  Careful  attention 
was  also  to  be  given  to  all  appeals  from  individual  taxpayers. 

These  increased  powers  have  been  an  invigorating  tonic,  under 
the  effects  of  which  a  much  more  vigorous  policy  has  been  pursued 
than  was  possible  for  the  former  board.  The  improvement  is 
shown  in  the  rapid  advance  of  the  assessments  since  1905,  pre- 
sented in  the  following  table:  ^ 

Assessment  of  Real  and  Personal  Property,  exclusive  of  Second-Class 
Railroad  Property  (millions) 

Percentage, 
Year  Real  Personal  personal  to  total 

1905 $999.1  $162.1  13.9 

1906 1,366.0  208.4  13-3 

1908 1,569-4  223.4  12.4 

19IO 1,776.4  271.9  13.3 

1912 1,899.0  297.0  13.5 

1914 2,084.7  293.8  12.3 

These  results  are  strikingly  similar  to  those  found  elsewhere 
under  the  general  property  tax.  The  total  assessment  of  both 
personal  and  real  property  has  increased  but  the  proportion 
between  the  two  has  remained  virtually  constant.  With  its 
broader  powers  the  board  has  been  incapable  of  unearthing 
the  hidden  wealth  of  the  state  under  the  rule  of  uniform  taxa- 
tion. The  board  has  been  under  no  delusion  regarding  the  situa- 
tion, and  it  has  consistently  advocated  the  modification  of  the  tax 
laws  relating  to  personal  property,  though  thus  far  without  suc- 
cess. In  1 910  it  remarked  that  the  returns  of  personalty  were 
"  suggestive  rather  of  the  amount  that  evaded  the  assessor  than 
of  the  amounts  that  they  found,"  and  it  pertinently  added  that 
the  situation  was  far  more  apparent  than  any  effective  remedy  to 
cure  it.^  The  board's  remedy  was  a  classified  property  tax,  or  — 
a  less  desirable  alternative  —  more  stringent  rules  for  the  listing 
of  such  property. 

'  From  the  annual  reports  of  the  State  Board  of  Equalization. 
*  New  Jersey  State  Board  of  Equalization,  Report,  1910,  pp.  i8,  19;  ibid.,  igii, 
pp.  20,  21. 


Il6  THE  STATE  TAX  COMMISSION 

It  has  been  more  successful,  however,  in  securing  legislation 
along  the  line  of  the  second  alternative.  A  law  of  19 13  ordered 
that  tax  maps  be  completed  for  the  entire  state  within  five  years.  ^ 
In  1914  two  laws  were  passed  affecting  the  assessment  of  personal 
property  but  they  were  not  sufficiently  broad  in  scope  to  afford 
great  relief.  The  first  permitted  deduction  of  debts  from  intangi- 
bles only  instead  of  from  all  property.^  The  deductions  claimed 
shrank  from  $5,403,521  in  1913  to  $1,030,421  in  1914.^  The  second 
required  bank  and  trust  company  stocks  to  be  assessed  to  the 
owner  at  true  value,  as  determined  by  deducting  the  assessed 
value  of  the  real  estate  from  the  combined  capital,  surplus,  and 
undivided  profits,  instead  of  being  assessed  at  the  owner's  esti- 
mate.* The  bank  officials  might  covenant  to  assume  the  taxes  in 
which  case  they  were  to  be  exempt  in  the  hands  of  the  owner.  A 
special  tax  rate  of  three-fourths  per  cent  was  provided  for  this 
class  of  property.  These  changes  increased  the  assessment  of 
bank  stocks  from  $9,727,596  in  1913  to  $94,173,459  in  1914.^ 

In  its  task  of  supervision  the  board  was  materially  assisted  by 
the  nev/  county  boards  which  had  been  established  in  1906.* 
These  boards  consist  of  three  persons  in  each  county,  appointed 
by  the  governor.  They  inspect  the  work  of  the  assessors  and 
have  been  of  especial  assistance  in  the  valuation  of  large  manu- 
facturing plants  and  mercantile  establishments.  Much  of  the 
credit  for  the  marked  improvement  in  the  basis  of  assessment 
must  be  given  to  these  county  boards,  and  their  efficiency  is  a 
strong  argument  for  a  connecting  hnk  of  this  sort  between  the 
state  and  the  local  officials.  After  complaint  from  the  county 
board  and  a  hearing,  the  state  board  now  has  power  to  remove  any 
assessor  found  guilty  of  neglect  or  refusal  to  comply  with  the  tax 
laws.^ 

1  Laws  of  New  Jersey,  1913,  ch.  175.  ^  Ibid.,  1914,  ch.  191. 

^  New  Jersey  State  Board  of  Equalization,  Report,  19 14,  p.  14. 

*  Laws  of  New  Jersey,  1914,  ch.  90. 

^  New  Jersey  State  Board  of  Equalization,  Report,  1914,  p.  18.  The  assessment 
of  bank  stock  declined  to  $88,425,306  in  1915. 

8  Laws  of  New  Jersey,  1906,  ch.  120. 

^  The  board  recommended  in  19 10  that  it  be  allowed  to  remove  assessors  found 
guUty  of  "  gross  incompetence."    Report,  1910,  pp.  16,  17. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      II J 

The  State  Board  of  Taxes  and  Assessments.  — The  anomalous 
situation  of  the  coexistence  of  two  strong  state  boards  was 
ended  in  19 15  by  a  law  which  combined  the  board  of  assessors 
with  the  board  of  equalization. ^  The  new  board  was  to  be  known 
as  the  state  board  of  taxes  and  assessments,  and  was  to  be  com- 
posed of  five  members  appointed  by  the  governor  for  a  term  of 
three  years.  Not  more  than  three  members  may  belong  to  the 
same  political  party  and  one  must  be  a  counsellor  at  law.  The 
salary  is  $3000.  The  act  of  191 5  did  not  extend  the  powers  of  the 
new  board  beyond  those  possessed  by  the  former  separate  boards 
and  its  functions  therefore  consist  of  the  assessment  of  certain 
classes  of  corporations  and  such  supervision  of  the  local  assess- 
ments as  had  already  been  developed  in  New  Jersey.  For  the 
administration  of  these  functions  the  new  board  has  organized 
three  separate  departments  corresponding  to  the  following  duties: 
the  assessment  of  railroads  and  canals;  the  assessment  of  miscel- 
laneous corporations;  and  the  assessment  of  general  property. 

Since  no  extension  of  power  was  made  by  the  new  law,  the 
board  has  conducted  its  work  along  the  lines  already  established. 
No  significant  changes  have  as  yet  been  introduced  in  the  method 
of  assessing  corporations,  and  the  valuation  of  railroad  and  canal 
property  has  increased  $10,200,000  over  the  total  for  1914.  On 
the  other  hand,  the  board  did  indicate  in  its  first  report  that  it  ex- 
pected a  higher  standard  of  compKance  with  certain  statutory 
requirements  on  the  part  of  local  officials  than  had  formerly  been 
the  case.  The  immediate  fruit  of  this  attitude  was  an  increase  in 
1915  of  $162,348,000  over  the  local  aggregate  for  1914.  Of  this 
total,  12.9  per  cent  consisted  of  personal  property.  A  comprehen- 
sive set  of  rules  of  procedure  was  formulated  with  a  view  to  facili- 
tating the  administrative  business  of  the  three  departments  of  the 
work. 2   It  was  also  armounced  that  the  construction  of  tax  maps 

'  Laws  of  New  Jersey,  1915,  ch.  244.  This  reform  was  strongly  recommended 
by  the  Commission  to  Investigate  Tax  Assessments,  appointed  in  191 2.  In  addi- 
tion, this  commission  proposed  to  create  a  State  Supervisory  Officer,  whose  duty 
should  be  the  continuous  supervision  of  the  local  assessors,  subject  to  the  direction 
and  control  of  the  State  Board  of  Equalization.    Cf.  Report,  pp.  30-33. 

'  New  Jersey  State  Board  of  Taxes  and  Assessment,  Report,  1915,  Part  I,  pp.  6- 
10.  The  reports  of  the  new  board  are  to  be  issued  in  three  parts,  corresponding  to 
the  principal  departments  of  administrative  activity. 


Il8  THE  STATE  TAX  COMMISSION 

was  to  be  pushed  forward  as  rapidly  as  possible,  and  that  the  rule 
for  the  separate  assessment  of  lands  and  improvements  was  to  be 
strictly  enforced. ^ 

It  is  too  soon  for  a  judgment  of  the  results  of  the  new  arrange- 
ment. The  unification  of  the  administrative  authority  and  respon- 
sibility was  unquestionably  a  step  in  the  right  direction,  but  until 
the  powers  of  the  new  board  are  expanded  beyond  the  sum  of 
those  formerly  possessed  by  the  older  boards,  the  control  over  gen- 
eral assessments  must  remain  inadequate  for  the  accomphshment 
of  the  best  results. 

The  Board  of  State  Assessors  of  Maine 

The  constitution  adopted  by  Maine  in  1820  provided  for  an 
assessment  and  equalization  of  real  estate  at  least  as  often  as  once 
in  ten  years,^  and  until  1890  the  maximum  period  permitted  by 
the  constitution  elapsed  between  the  appraisals  of  real  estate. 
These  decennial  revaluations  were  equalized  by  a  legislative  com- 
mittee. There  was  no  other  inspection  or  control  of  local  assess- 
ments and  the  conditions  which  were  everywhere  common  by  the 
third  quarter  of  the  nineteenth  century  emerged  also  in  Maine. 
Property  was  undervalued,  districts  competed  with  each  other  in 
shifting  the  state  tax,  and  very  serious  abuses  developed,  espe- 
cially in  the  evasion  of  certain  classes  of  personal  property.^ 
Various  governors  had  emphasized  markedly  iniquitous  or 
oppressive  features  of  the  tax  system.'*  Particularly  strong  was 
Governor  Plaisted's  message  of  1881  upon  the  fundamental 
necessity  of  a  greater  equality  in  the  distribution  of  the  public 
burden.  Six  years  later  Governor  Bodwell  attacked  the  defec- 
tive administration,  commenting  upon  the  methods  of  equaliza- 
tion as  follows :  ^ 

^  New  Jersey  State  Board  of  Taxes  and  Assessment,  Report,  1915,  Part  I,  pp. 
12,  13.  Ch.  186,  Laws  of  New  Jersey,  1915,  authorized  townships  to  defray  the  cost 
of  tax  maps  by  the  issue  of  bonds.  Boroughs  might  borrow  for  this  purpose  by 
issuing  certificates  of  indebtedness  payable  in  one  year  and  due  in  seven  years. 

*  Constitution  of  Maine,  1820.     Art.  IX,  §§  7,  8. 

^  Report  of  the  Special  Tax  Commission  of  Maine,  1890,  pp.  10-12. 

*  Cf.  Hst  of  extracts  from  gubernatorial  messages,  ibid.,  pp.  26-28. 
^  Ibid.,  pp.  26,  27. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      II9 

A  board,  composed  of  one  commissioner  from  each  county,  hastily  sum- 
moned at  the  close  of  each  decade,  with  each  member  naturally  endeavoring 
to  have  his  own  county  valued  as  low  as  possible,  would  not  seem  to  be  the 
best  method  advisable.  And  yet  that  is  the  character  of  our  present  system. 
A  smaller  number  of  commissioners,  say  not  exceeding  three,  at  work  for  a 
longer  period,  chosen  not  as  the  representatives  of  their  counties,  but  for 
the  whole  state,  would  be  less  cumbrous,  less  expensive,  and  in  many  ways 
more  efficient. 

The  limit  of  tolerance  was  reached  in  1889  and  a  special  tax  com- 
mission was  appointed  for  the  purpose  of  devising  a  more  just  and 
equitable  system  of  taxation. 

This  commission  was  impressed  by  the  extent  and  nature  of  the 
practices  which  appeared  to  be  common.  The  decennial  equaliza- 
tion was  condemned  as  the  source  of  constant  inequalities  in  the 
distribution  of  tax  burdens.  For  instance,  the  report  of  the 
equalization  committee  in  1890  showed  a  total  gain  over  1880  of 
nearly  $31,000,000  for  the  state,  but  this  advance  was  confined  to 
eleven  counties,  while  five  counties  had  actually  declined  in  valua- 
tion.^ The  state  tax,  estabhshed  for  ten  years,  was  an  increasingly 
unfair  exaction  from  the  declining  counties  and  a  progressive 
premium  upon  prosperity.  The  commission  had  been  instructed 
to  recommend  a  more  equitable  tax  system,  but  had  no  thought 
of  suggesting  abandonment  of  the  general  property  tax,  and  the 
proposals  made  were  confined  to  administrative  changes  in  the 
direction  of  greater  centralization.  One  of  the  first  and  most  im- 
portant recommendations  was  the  creation  of  a  board  of  state 
assessors.  It  was  expected  that  such  a  board  as  was  recom- 
mended would  promote  equality  of  assessments  and  secure  a 
substantial  reduction  of  the  tax  rate.^ 

The  board  of  state  assessors  was  accordingly  created  in  1891.^ 
There  were  to  be  three  members  elected  by  the  legislature  on 
joint  ballot  for  terms  of  two,  four,  and  six  years,  respectively. 
Thereafter  the  full  term  was  to  be  six  years.  The  salary  was  to  be 
$1500  per  annum.  The  chief  duties  were  to  serve  as  a  state  board 
of  equahzation  and  to  assess  those  corporate  taxes  which  had 
formerly  been  assessed  by  the  governor  and  council.    As  will  be 

*  Cf .  list  of  extracts  from  gubernatorial  messages,  Report  of  the  Special  Tax  Com- 
mission of  Maine,  1890,  p.  32. 

'  Ibid.,  p.  39.  '  Laws  of  Maine,  1891,  ch.  103. 


I20  THE  STATE  TAX  COMMISSION 

seen,  the  supervisory  powers  actually  given  to  the  board  were  in 
reahty  of  very  little  importance. 

The  function  of  state  equaHzation  was  made  significant  by  pro- 
viding a  biennial  assessment  of  real  estate,  and  requiring  the  board 
to  equalize  both  real  and  personal  property.  In  collecting  the 
necessary  data  for  the  equalization,  the  members  of  the  state 
board  were  to  visit  each  county  at  least  once  in  two  years  and  to 
hold  meetings  which  the  town  assessors  were  obliged  to  attend, 
on  penalty  of  having  their  towns  charged  with  the  expense  of 
a  special  visit  from  a  member  or  special  agent  of  the  board. 

The  first  members  of  the  state  board  appear  to  have  had  an 
intelligent  conception  of  the  conditions  confronting  them.  Their 
discussion  of  the  situation  in  the  earlier  annual  reports  indi- 
cates a  desire  to  attack  the  problem  of  proper  equalization  in  a 
thorough  and  businesslike  manner  and  they  made  several  valu- 
able suggestions  looking  toward  the  elimination  of  administrative 
defects.^  For  instance,  it  was  recommended  that  uniform  assess- 
ment blanks  be  provided  by  the  state  in  order  to  secure  a  more 
equal  assessment  of  property.^  In  the  interest  of  uniformity,  also, 
was  the  proposal  for  a  uniform  classification  of  farm  lands,  for 
which  was  suggested  the  grouping:  tillage,  pasture,  wood,  and 
timber  lands.^  In  order  to  promote  the  acceptance  of  the  same 
standards  of  value  in  different  counties,  the  board  suggested 
county  conventions  of  assessors,^  thus  elevating  the  dignity  of  the 
biennial  meetings  at  which  attendance  was  compulsory.  The 
need  of  greater  uniformity  may  be  illustrated  by  a  few  of  the 
many  variations  which  were  found  in  the  basis  of  assessment, 
often  in  adjoining  towns  of  the  same  county.  In  one  county  the 
average  assessed  value  of  horses  in  different  towns  ranged  from 
$24  to  $133.55;  the  average  assessed  value  of  cows  ranged  from 
$10  to  $30;  and  similar  discrepancies  occurred  in  the  valuations 
of  other  classes  of  farm  animals.  Bank  stocks  of  the  same  real 
value  were  found  to  be  assessed  at  from  50  per  cent  below  to  25 

1  This  was  especially  true  in  the  earlier  years. 

*  Board  of  State  Assessors,  Report,  189 1,  p.  136. 

^  Ibid.,  1892,  p.  176.  Cf.  Report  of  the  Committee  on  Classification  of  Real 
Estate,  Proceedings  of  the  National  Tax  Conference,  1911,  pp.  SZZSAS- 

*  Board  of  State  Assessors,  Report,  1891,  p.  133. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      121 


per  cent  above  actual  value.  "  Some  towns  were  using  one-half, 
some  two-thirds,  some  three-fourths,  some  90  per  cent,  and  some 
made  a  difference  between  real  and  personal  property  in  the 
percentage  used  as  a  standard."  ^ 

The  board's  vigor  and  initiative  were  of  short  duration,  how- 
ever, and  after  these  early  suggestions  it  appears  to  have  lapsed 
into  inaction,  lacking  the  power  to  deal  eflfectively  with  the  im- 
proper practices  of  the  assessors  and  viewing  with  resignation 
the  actions  which  it  was  powerless  to  prevent.  In  this  respect 
the  Maine  board  was  true  to  type  —  almost  every  other  state 
board  of  equalization  began  in  all  hopefulness  to  exercise  such 
powers  as  it  possessed;  and  it  steadily  declined,  upon  finding 
these  powers  insufficient,  to  the  unfortunate  pass  where  even 
the  authority  possessed  was  but  imperfectly  exercised.  In 
order  to  show  that  such  has  been  the  experience  of  the  Maine 
board  the  results  of  assessment  and  equalization  will  be  presented 
in  such  detail  as  is  possible :  ^ 

Assessed  and  Equalized  Valuations  of  Property  in  Maine 
(millions) 


By  the  local  assessors 

By  the  Board  of  State  Assessors 

Year 

Real, 

Total, 

Grass 

Grand  total 

Real 

Per- 
sonal 

Total 

except 
wild 
lands 

Per- 
sonal 

real  and 
per- 
sonal 

Wild 
land 

and 
timber 
on  pub- 
lic land 

by  the 
Board  of 
State  As- 
sessors 

1892 

$174-8 

$70.1 

$265.0 

$217.9 

$78-2 

$296.1 

$17-8 

$0,415 

$314-2 

1894 

204.1 

68.1 

272.3 

232.0 

74-8 

306.8 

17 

I 

418 

324 

5 

1896 

213-4 

64.9 

278.4 

239-9 

71. 1 

3110 

17 

0 

444 

328 

5 

1898 

221.3 

63.1 

284.5 

244.2 

68.7 

312.8 

16 

2 

424 

329 

5 

1900 

229.2 

64.8 

294.6 

248.8 

68.3 

3I7-I 

19 

I 

504 

336 

7 

1902 

241.2 

67.3 

308.5 

256.8 

69.2 

325-4 

25 

5 

751 

352 

2 

1904 

252.5 

71.2 

323-7 

262.6 

74-0 

336.6 

29 

0 

890 

366 

5 

igo6 

265.9 

74-4 

340-3 

278.5 

78.7 

357-2 

36 

4 

136 

394 

7 

1908 

285.9 

79-0 

364-9 

303-0 

82.6 

385-6 

41 

3 

310 

428 

2 

1910 

310-6 

83-4 

394-1 

320.9 

85.6 

406.S 

43 

9 

400 

451 

8 

1912 

329.6 

87.3 

416.9 

341-6 

89.6 

431-3 

45 

5 

439 

478 

2 

1914 

346-7 

93.8 

439-5 

352-5 

97-2 

449-7 

47 

3 

473 

498 

5 

1916 

3S8.6 

97.8 

456.5 

364.8 

io2.y 

467-7 

51 

9 

678 

521.4 

The  significant  comparison  to  be  made  in  this  table  is  that  of 
the  result  of  the  local  assessment  and  the  state  equalization.    In 

^  Board  of  State  Assessors,  Report,  1891,  p.  134. 
^  Compiled  from  the  reports  of  the  Board. 


122  THE  STATE  TAX  COMMISSION 

the  first  place  it  will  be  noted  that  the  board's  action  has  been 
more  vigorous  in  deahng  with  real  than  with  personal  prop- 
erty, as  is  shown  by  the  greater  relative  additions  to  the  former 
class  of  property.  This  action  has  tended  to  promote  rather  than 
lessen  the  inequality  of  the  tax  burden,  for  it  has  been  the  uni- 
versal experience,  to  which  Maine  is  no  exception,  that  real  prop- 
erty has  been  better  assessed  than  many  classes  of  personal 
property.^  In  the  second  place  the  relative  increases  made  in  both 
real  and  personal  property  have  steadily  decreased  as  the  local 
assessments  increased,  notwithstanding  the  board's  unlimited 
power  to  alter  valuations  in  the  process  of  equalization.^  In  1892 
real  property  was  increased  24.6  per  cent  and  personal  property 
1 1.4  per  cent;  but  in  191 6  the  increases  were  only  1.72  per  cent 
and  0.52  per  cent  respectively.  This  diminishing  increase  given 
to  the  local  figures  in  the  state  equalization  has  not  carried 
the  state  very  far  toward  a  higher  basis  of  valuation,  considering 
the  natural  increase  in  the  amount  and  value  of  the  taxable  prop- 
erty. Accurate  checks  on  this  point  are  not  available,  but  it  may 
be  pointed  out  that  the  Census  valuation  of  farm  lands  and  build- 
ings increased  65.3  per  cent  between  1900  and  1910,  while  the 
local  assessment  of  all  real  property  increased  only  35.5  per  cent, 
and  the  equahzed  valuation  only  24.9  per  cent  in  the  same  time. 
It  was  admitted  in  1900,  for  instance,  that  the  increase  in  that 
year  over  the  figures  of  1898  was  due  to  the  erection  of  new  mills, 
additions  and  improvements  to  property,  rather  than  to  a  higher 
valuation  of  existing  property.^ 

The  results  of  the  board's  efforts  to  induce  the  local  assessors 
to  raise  their  standards  of  valuation  are  thus  seen  to  have  been 
small.  In  connection  with  every  biennial  revaluation  the  latter 
have  been  urged  to  make  a  careful  revision  of  their  figures,  but 
these  exhortations  have  fallen,  for  the  most  part,  on  barren 
ground;  at  least  they  have  brought  forth  but  little  fruit.  One 
reason  for  this  failure,  of  course,  has  been  the  lack  of  adequate 
authority.    But  it  is  doubtful  if  the  board  has  always  displayed 

*  Admitted  by  the  Special  Tax  Commission  of  Maine,  Report,  1890,  p.  11. 
^  Revised  Statutes  of  Maine,  1903,  as  amended,  ch.  8. 
'  Board  of  State  Assessors,  Report,  1900,  p.  5. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      1 23 

the  firmness  and  insight  necessary  to  make  the  most  of  its  Hmited 
powers.  Thus,  in  1896,  after  an  actual  decrease  in  the  local 
assessment  of  personal  property,  the  board  said :  > 

The  returns  received  from  the  hands  of  the  local  assessors  in  the  past  two 
years  have  as  a  whole  been  highly  satisfactory  to  this  board,  and  much 
credit  is  due  them  for  the  faithful  and  efficient  manner  in  which  they  have 
performed  their  work. 

Such  excessive  amiability  was  in  keeping  with  the  sentences  which 
immediately  followed,  in  which  the  board  urged  the  assessors  to 
improve  on  their  past  achievements : 

We  desire,  however,  that  more  of  them  in  the  future  will  include  bicycles 
in  their  personal  property,  and  use  the  same  effort  to  obtain  in  full  this 
property  and  enter  it  on  their  lists  as  other  classes. 

The  rapid  increase  of  the  number  of  such  vehicles  during  the 
"  bicycle  craze  "  was  probably  not  accompanied  by  a  parallel 
growth  of  the  assessments  of  bicycles;  but  if  the  comparison  were 
made  with  the  assessment  of  moneys,  for  example,  the  relative 
advantage  would  probably  be  found  to  be  in  favor  of  the  bicycles. 
With  very  inadequate  taxation  of  intangible  property,  mills,  and 
other  great  interests,  to  spend  a  paragraph  of  the  two  pages  of 
text  on  the  assessment  of  bicycles  smacks  of  the  ridiculous !  ^ 

But  the  board  has  disclaimed  the  intention  of  securing  large 
increases  in  toto,  preferring  rather  "  to  make  a  fair  equalization  on 
a  conservative  basis."  ^  What  can  be  said  of  its  efforts  to  promote 
greater  equity  of  tax  burden  among  districts  or  classes  of  prop- 
erty ?  In  the  first  place  the  table  above  shows  that  from  1892  to 
1908  the  local  assessment  of  personal  property  advanced  12.7  per 
cent,  and  of  real  property,  63.5  per  cent.'*   The  equalized  figures 

*  Board  of  State  Assessors,  Report,  1896,  pp.  270,  271. 

^  The  Maine  Special  Tax  Commission  of  1908  estimated  that  about  10  per  cent 
of  the  total  taxable  mortgages  and  other  intangible  property  was  assessed  in  1907. 
The  proportion  could  not  have  been  much  greater,  if  any,  a  decade  earlier.    Report, 

P-  SO- 

'  Board  of  State  Assessors,  Report,  1898,  p.  255. 

*  1908  was  the  last  year  in  which  the  board's  powers  were  comparable  with 
those  possessed  in  1892.  The  proportion  of  personal  property  to  total  in  1908  was 
21.4  per  cent,  so  the  later  extension  of  authority  has  not  improved  the  situation 
greatly. 


124  THE  STATE  TAX  COMMISSION 

show  somewhat  slower  rates  of  increase  but  the  real  property 
assessments  have  increased  several  times  as  fast  as  those  of  per- 
sonalty. The  latter  forms  a  smaller  proportion  of  the  total 
assessed  valuation  of  the  estates  today  than  in  1892,  its  percent- 
ages of  the  total  declining  from  26.4  per  cent  to  22.0  per  cent 
until  1916. 

In  the  second  place  there  has  been  no  shift  of  the  burden  borne 
by  personal  property  to  the  more  intangible  forms.  The  classifica- 
tion followed  since  1892  does  not  permit  an  extensive  comparison 
of  the  same  kinds  of  property,  but  one  important  item  of  intan- 
gible property  —  money  at  interest  —  appears  in  the  returns  for 
1892  and  1908.  In  the  former  year  $11,000,000  were  returned, 
and  in  the  latter  year  $11,800,000,  and  the  intermediate  variations 
have  never  gone  as  high  as  $1 2,000,000. ^  Bank  stock,  including 
trust  company  stock,  was  returned  at  $8,800,000  in  1892  and  at 
$10,000,000  in  1908;  the  capital  stock  of  other  than  banking 
corporations  was  assessed  at  $1,000,000  in  1892,  but  was  not 
assessed  for  more  than  $600,000  in  the  ten  years  preceding  1908. 
Such  slight  increases  as  have  been  made  in  the  total  valuation  of 
personal  property  have  been  borne  mainly  by  stock  in  trade, 
household  furniture  and  machinery.  The  Hst  of  items  assessed  as 
personal  property  has  been  extended  somewhat,  but  the  greater 
part  of  the  gain  has  come  through  minute  additions  to  the  tangible 
classes,  while  the  intangible  classes  have  scarcely  more  than  held 
their  own. 

Finally,  there  has  been  little  readjustment  of  the  relative  bur- 
den borne  by  rural  and  urban  property.  The  escape  of  intangibles, 
owned  for  the  greater  part  in  the  cities,  gives  the  urban  interests 
an  advantage.  From  1900  to  1906  there  was  a  reduction  of  about 
$20,000  in  the  amount  of  state  tax  levied  on  the  farming  towns, 
and  of  $18,629  on  the  cities.  With  such  a  small  difference  in  favor 

'  The  Maine  Tax  Commission  of  1908  estimated,  on  the  basis  of  data  collected 
at  that  time,  that  the  total  amount  of  "  money  at  interest "  was  in  excess  of 
$110,000,000  in  1907.  Report,  p.  50.  In  1915  the  board  stated  that  during  the  past 
twenty  years  the  increase  in  the  assessed  valuation  of  all  property  had  been  ap- 
proximately 40  per  cent,  of  real  estate  alone  65  per  cent,  of  wUd  lands  175  per 
cent,  and  of  intangibles,  including  bank  stocks,  only  about  5  per  cent.  Report,  1915, 
p.  19.     The  amount  of  "  money  at  interest  "  assessed  in  1916  was  $12,882,000. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT       1 25 

of  the  rural  towns,  extending  over  six  years,  it  is  safe  to  say  that 
the  net  result  of  these  six  years  was  to  maintain  the  status  quo,  and 
to  perpetuate  whatever  inequality  had  existed  previous  to  1900.^ 
A  typical  illustration  of  the  operation  of  the  assessment  process  in 
increasing  the  tax  burden  upon  rural  communities  is  found  in  the 
returns  for  1903.  In  that  year  twenty  cities,  with  45.5  per  cent  of 
the  total  valuation  of  the  state,  contributed  but  28.4  per  cent  of 
the  increase  over  1902  while  the  towns  and  plantations,  with  54.5 
per  cent  of  the  total  valuation,  contributed  71.6  per  cent.^  One 
observer  of  actual  conditions  in  Maine  has  collected  data  which 
show  that  the  farmers  are  paying  from  6  per  cent  to  7  per  cent  of 
their  net  income  in  taxes,  while  wage-earners,  professional  men 
and  those  engaged  in  mercantile  pursuits  in  the  cities  are  paying 
from  .3  per  cent  to  1.25  per  cent  of  their  net  income  in  taxes.^  He 
concludes : 

The  heaviest  burden  falls  upon  the  part  of  the  population  least  able  to 
bear  it,  and  constitutes  one  of  the  forces  that  are  driving  the  men  and 
women  oflF  the  Maine  farms,  and  causing  the  depopulation  of  rural  com- 
munities. 

The  reduction  in  the  quotas  of  state  tax  levied  on  rural  and 
urban  estates  was  accomplished  by  increasing  the  valuation  of  the 
wild  lands,  in  the  survey  and  valuation  of  which  the  board's  most 
aggressive  and  effective  work  has  been  done.*  The  board  was 
given  direct  supervision  of  the  assessment  of  these  lands  in  189 1 
and  the  legislature  has  at  diJfferent  times  insisted  on  a  higher 
assessment.^  Because  of  this  legislative  insistence,  representing 
a  popular  demand  that  these  lands  be  more  heavily  taxed,  and 
because  sufficient  authority  has  been  vested  in  the  board  to  exe- 
cute this  intention,  the  assessed  valuation  of  wild  lands  has 
steadily  increased.  The  ease  and  accuracy  of  the  assessment  have 
been  facilitated  by  the  construction  of  land  maps  based  upon 
timber  cruises  and  surveys.    Such  maps  are  now  complete  for  all 

1  Board  of  State  Assessors,  Report,  1906,  p.  12. 

2  Ibid.,  1903,  p.  5. 

^  R.  J.  Sprague,  Tax  Problems  in  Maine,  Proceedings  of  the  National  Tax  Con- 
ference, 1907,  p.  465. 

*  Sprague,  ibid.,  pp.  467-470,  discusses  the  taxation  of  wild  lands  in  Maine. 

*  E.  g..  Board  of  State  Assessors,  Report,  1902,  p.  7. 


126  THE  STATE  TAX  COMMISSION 

unorganized  townships.^  The  chief  arguments  for  increased  as- 
sessment have  been  those  aimed  at  the  absentee  capitalist  who  is 
exploiting  the  state's  resources. 

But  the  very  vigor  of  the  board's  work  in  the  wild  lands  assess- 
ment only  makes  more  unfavorable  the  comparison  with  its 
results  in  dealing  with  other  property.  To  take  only  one  instance 
of  the  difficulty  of  improving  assessment  conditions  without 
proper  supervisory  authority,  the  valuation  of  1908  will  be  cited. 
In  1907  the  board  announced  that  special  efforts  were  to  be 
made  to  secure  an  efficient  revaluation  in  1908,  since  the  pros- 
perity of  the  past  few  years  had  caused  many  changes  in  property 
values  and  an  extremely  careful  revaluation  was  most  essential. 
Conferences  were  held  in  each  county,  and  various  other  means 
were  used  to  arouse  the  assessors;  but  despite  these  efforts  the 
aggregate  of  cities,  towns,  and  plantations  increased  only  8  per 
cent  over  1906,  while  the  wild  lands  showed  an  increase  of  13.5 
per  cent. 2  The  greater  rate  of  increase  for  the  wilderness  than  for 
the  centers  of  population  and  industry  is  an  evidence  of  the 
board's  abihty  to  accomplish  results  when  sufficient  authority  is 
given ;  but  it  is  also  a  striking  commentary  on  the  results  of  the 
local  assessor  when  not  subject  to  any  will  but  his  own. 

The  special  tax  commission  of  1908  concluded  that  competitive 
undervaluation  was  due  to  the  desire  to  shift  the  state  tax,  which 
was  not  being  levied  "  justly  and  equitably  "  under  existing 
conditions.    It  summed  up  the  situation  thus:  ^ 

Under  the  present  law  the  State  Board  of  Assessors  is  supposed  to  equalize 
values  between  towns  and  report  such  equalization  to  the  legislature.  We 
feel  that  they  have  failed  in  obtaining  the  desired  results,  although  without 
doubt  they  have  obtained  more  uniformity  than  prevailed  before  the  Board 
was  created.  Their  failure  to  our  mind  is  due  rather  to  the  absence  of  efficient 
laws  than  to  the  composition  of  the  Board.  The  members  of  the  Board 
should  be  better  paid,  and  clothed  with  more  authority. 

^  Board  of  State  Assessors,  Report,  1906,  p.  11.  More  accurate  surveys  have 
increased  the  acreage.  Ibid.,  191 1,  p.  10.  In  1915  the  legislature  doubled  the 
previous  appropriation  for  surveying  and  estimating  timber  lands.  Ibid.,  1915, 
p.  21. 

*  Ibid.,  1908,  p.  II. 

'  Report  of  the  Tax  Commission  of  Maine,  1908,  p.  7. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      12/ 

This  analysis  of  the  situation  was  correct.  The  board  had  failed 
precisely  because  its  powers  were  inadequate  to  compel  the  asses- 
sors to  work  in  that  harmony  and  unity  which  the  commission 
of  1890  had  supposed  would  result  in  the  estabhshment  of  a  board 
equipped  with  even  such  hmited  powers  as  were  given  to  the  board 
of  assessors  in  1891.  But  an  examination  of  the  results  shows 
that  comparatively  little  was  actually  accomplished  toward  a 
real  solution  of  the  problems  of  equitable  taxation.  In  the  light 
of  these  revelations  the  legislature  of  1909  inaugurated  a  series  of 
changes  which  marked  a  very  interesting  step  in  the  evolution  of 
the  Maine  board  toward  the  tax  commission  stage.  The  chief 
modifications  were  these :  ^ 

a.  The  members  were  to  be  appointed  by  the  governor,  with  the 
advice  and  consent  of  the  council  and  the  governor  was  to  name 
the  chairman.  Appointment  was  to  be  made  upon  the  basis  of 
fitness  through  special  knowledge  and  skill  in  matters  pertain- 
ing to  taxation.  Members  were  to  give  their  entire  time  to  the 
work,  and  the  board  was  to  be  in  continuous  session  from  day 
to  day. 

b.  General  supervision  over  the  whole  tax  system  was  again 
conferred  upon  the  board;  but  it  was  made  much  more  effective 
by  authorizing  the  reassessment  of  any  property  at  the  discretion 
of  the  board. 

c.  The  salary  was  increased  to  $2,000.  This  meager  advance 
was  quite  inadequate  —  the  salary  should  have  been  increased 
to  a  figure  somewhat  more  nearly  commensurate  with  the  service 
which  the  state  was  expecting  to  receive  under  the  new  law. 

This  extension  of  supervisory  power  stimulated  the  local  asses- 
sors to  greater  efforts  and  in  19 10  they  added  to  the  duplicate 
$30,000,000  —  the  largest  increase  ever  made  in  a  single  year. 
While  this  rate  of  increase  was  not  maintained  in  the  two  follow- 
ing revaluations,  the  local  returns  displayed  greater  improvement 
than  had  characterized  them  previous  to  1909.  The  extension 
of  authority  was  undoubtedly  wise  and  has  been  justified  by 
the  results.    But  the  gains  have  been  confined  largely  to  real 

*  Laws  of  Maine,  1909,  ch.  220.  Cf.  Report  of  the  Tax  Commission  of  Maine, 
1908,  pp.  79-84- 


128  THE  STATE  TAX  COMMISSION 

estate  and  it  cannot  be  said,  therefore,  that  the  mere  increase  of 
central  authority  has  solved  the  diflficulties  which  had  emerged 
under  the  former  regime.  In  the  years  1910-16,  which  included 
four  biennial  revaluations,  the  assessment  of  real  estate  was  in- 
creased $48,000,000  and  of  personal  property  $14,400,000.  Money 
at  interest  was  assessed  at  practically  the  same  figure  in  1914  as  in 
1892,  and  there  is  no  evidence  that  the  assessment  of  any  other 
class  of  intangible  property  has  been  improved  since  1909.  Real- 
ization of  this  failure  led  the  board  to  suggest  in  191 2  that  classi- 
fication of  personal  property  should  be  investigated  with  a  view 
to  legislation  in  case  the  plan  should  prove  expedient.^  The  special 
commission  of  1908  spoke  with  approval  of  classification,  and  in 
1 913  a  constitutional  amendment  permitting  classification  of  in- 
tangible property  was  adopted ;  but  no  further  action  has  as  yet 
been  taken,  and  the  escape  of  intangibles  still  continues. 

The  Taxation  of  Corporations.  —  The  system  of  specific  cor- 
porate taxation  which  has  been  developed  in  Maine  has  relegated 
the  board  of  assessors  to  a  rather  subordinate,  though  not  un- 
important position.  Its  duties  in  this  connection  are  almost 
entirely  clerical,  and  may,  therefore,  be  passed  over  with  very 
brief  notice. 

The  board  is  required  to  make  a  formal  "  assessment  "  of  the 
excise  taxes  due  on  the  amounts  of  gross  receipts  which  have  been 
returned  to  it  or  to  some  other  state  officer.  It  is  usually  pro- 
vided that  if  any  corporation  fail  to  make  the  appropriate  returns 
required,  the  board  shall  make  an  assessment  upon  which  the 
taxes  are  to  be  calculated.  The  only  other  opening  for  the  exer- 
cise of  administrative  judgment  is  in  connection  with  the  distribu- 
tion of  a  portion  of  the  excise  tax  upon  railroad,  street  railroad, 
telegraph  and  telephone  companies  to  the  locahties  in  which 
holders  of  the  stock  reside.  There  is  apportioned  locally  an 
amount  of  the  total  taxes  equal  to  one  per  cent  of  the  true  value  of 
the  capital  stock  upon  April  i,  as  ascertained  by  the  board.  The 
special  commission  of  1908  argued  mildly  for  the  abandonment 
of  the  system  of  gross  earnings  taxes,  citing  the  recent  action  of 

1  Board  of  State  Assessors,  Report,  1912,  p.  13.  Renewed  in  ibid.,  1914,  p.  21. 
Cf.  also  Report  of  the  Tax  Commission  of  Maine,  1908,  pp.  18,  19. 


BOARDS  OF  EQUALIZATION  AND  ASSESSMENT      1 29 

Wisconsin  and  Michigan.^  The  legislature  was  led  to  order  the 
board  to  ascertain  the  actual  value  of  all  railroad  property  in 
Maine  for  purposes  of  taxation,  but  as  no  provision  was  made 
for  expert  assistance  little  can  be  expected  from  this  source  regard- 
ing the  actual  distribution  of  the  present  burden  of  taxes  between 
corporate  and  other  property. 

*  Report  of  the  Tax  Commission  of  Maine,  1908,  pp.  31, 32. 


CHAPTER  IV 

ORGANIZATION  AND  EQUIPMENT  OF  THE 
STATE  TAX  DEPARTMENTS 

Thus  far  in  this  study  of  state  control  over  the  assessment  of 
property  we  have  been  concerned  principally  with  the  historical 
evolution  of  the  administrative  side  of  American  taxation.  The 
ground  covered  may  be  reviewed,  in  a  series  of  generalizations 
regarding  the  earlier  state  boards  of  equaUzation  and  assess- 
ment. This  summary  will  also  serve  as  a  fresh  point  of  approach 
to  the  more  recent  phases  of  central  administration  of  the  tax 
system. 

The  organization  of  state  boards  of  equalization  was  the  first 
attempt  that  was  made,  on  a  statewide  scale,  to  counteract  under- 
valuation and  evasion;  and  especially  to  effect  a  fairer  distribu- 
tion of  the  direct  state  tax.  The  initial  performances  of  these 
boards  were  sometimes  beneficial  and  in  a  few  states  their 
presence  infused  new  vigor  into  tax  administration.  The  im- 
provement was  only  temporary,  however,  for  the  administrative 
activity  of  these  boards  tended  gradually  toward  a  formal  routine 
approval  of  the  local  returns.  The  state  of  mind  which  accom- 
panied this  decHne  may  be  characterized  as  one  of  mingled  feeUngs 
of  indifference  and  impotence.  The  restricted  original  powers, 
often  still  further  lessened  by  a  hostile  judiciary,  were  too  narrow 
to  permit  the  state  boards  of  equalization  to  cope  effectively  with 
the  local  assessor  in  his  stronghold;  and  state  legislatures  were 
slow  to  authorize  an  invasion  of  the  local  officiars  domain. 

Further  contribution  to  the  decay  of  the  state  board  of  equah- 
zation  was  made  by  the  shift  in  emphasis  from  the  state  to  the 
local  taxes  on  property.  The  development  of  corporation  and 
other  special  taxes  has  lessened  in  some  states  the  relative  impor- 
tance of  direct  state  taxation,  while  in  a  few  cases  the  latter  has 
been  entirely  abandoned.  On  the  other  hand  the  tremendous  in- 
crease of  local  expenditures  in  the  last  generation  has  transferred 


STATE  TAX  DEPARTMENTS  131 

the  storm  center  of  the  general  property  tax  to  the  local  units, 
wherein  have  recently  been  displayed  all  of  the  evils  that  once 
characterized  the  operation  of  uniform  taxation  on  a  wider  scale. 
The  remedy  called  for  by  this  new  situation  has  been  state  super- 
vision, rather  than  state  equalization;  and  the  older  adminis- 
trative bodies,  created  for  the  latter  purpose  only,  have  given 
way  or  have  been  superseded  by  new  state  tax  departments 
created  especially  for  supervisory  functions. 

The  growing  importance  of  corporate  assessment  led  to  the 
transfer  of  this  function  to  central  boards,  often  the  state  boards 
of  equalization.  These  boards  usually  proved  incapable  of  dealing 
with  the  corporations ,  and  the  results  of  corporate  assessment  by 
ex  officio  boards  display  the  same  languorous  dechne  that  marked 
the  work  of  equalization  boards.  The  emergence  of  the  state  tax 
commission  came  as  a  welcome  reHef  for  all  interests  except  those 
which  had  been  profiting  by  the  slovenly  and  inefficient  work  of 
the  older  boards.  Attention  will  now  be  turned  to  these  new 
tax  departments. 

The  great  diversity  of  conditions  under  which  these  tax  com- 
missions have  developed  has  naturally  produced  wide  variations 
in  their  structure  and  powers.  These  variations  have  reflected 
aUke  the  public  temper  toward  fiscal  reform,  the  willingness  to 
delegate  effective  supervisory  powers  to  an  administrative  body, 
and  greater  freedom  from  poHtical  and  local  influences.  Before 
proceeding  to  a  detailed  study  of  particular  tax  commissions,  the 
whole  field  will  be  surveyed  and  some  features  common  to  all  such 
bodies  will  be  indicated.  This  is  best  done  by  a  tabular  exhibit 
(see  below)  which  shows  for  each  state  the  date  of  organization, 
the  number  of  qgmmissioners,  the  term,  salary,  method,  and  basis 
of  appointment.     Some  data  on  financial  support  are  also  given. 

I.  The  hoard  vs.  the  single  official. — The  first  point  to  be 
noticed  is  the  board  of  commissioners  as  against  the  single 
official.  The  majority  of  the  states  have  created  a  commission  of 
three  members.  Oregon  has  a  board  of  five,  composed  of  two  ap- 
pointive and  three  ex  officio  members  while  Indiana  has  reversed 
these  proportions,  giving  the  appointed  members  a  majority.  A 
few  states  have  been  content  to  provide  for  a  single  official  and  in 


132 


THE  STATE  TAX  COMMISSION 


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STATE  TAX  DEPARTMENTS 


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134  ^^^  STATE  TAX  COMMISSION 

Massachusetts  and  West  Virginia  the  tax  commissioner  has  also 
been  made  the  commissioner  of  corporations.  Overloading  of  the 
department  in  this  way  will  probably  lead  to  inferior  work  unless 
the  pressure  be  removed  by  corresponding  enlargement  of  the 
organization. 

The  advantages  of  the  board  plan  are  numerous.  In  the  first 
place  the  amount  of  work  to  be  done  is  greater  than  can  well  be 
performed  by  one  man  and  a  board  of  at  least  three  permits  a 
valuable  division  of  labor.  The  scope  of  duties  varies  somewhat 
but  as  has  been  noted,  there  is  everywhere  the  tendency  to  add 
additional  duties.  A  board  of  more  than  three  members  would 
probably  be  less  desirable  on  account  of  the  greater  unwieldiness 
of  the  larger  body.  Neither  Oregon  nor  Indiana  secure  any 
advantage  from  this  source.  In  the  second  place,  the  board  plan 
enables  the  benefits  of  experience  to  be  preserved  and  made 
cumulative.  The  terms  of  office  can  easily  be  arranged  so  that 
there  will  normally  be  two  experienced  members  and  the  loss  of 
time  in  drilling  the  newcomer  is  minimized.  The  states  with 
single  officials  lose  valuable  time  and  almost  inevitably  retrograde 
somewhat  while  the  new  appointee  is  groping  his  way,  often  un- 
assisted, through  the  accumulated  practice  and  procedure  that 
had  become  routine  for  his  predecessor.  Further,  the  possible 
errors  made  during  this  novitiate  period  in  the  valuation  of  rail- 
roads or  the  equalization  of  assessments  may  be  the  source  of 
serious  criticisms  against  the  whole  system  of  centralized  adminis- 
tration. In  the  third  place,  the  commission  permits  of  a  certain 
amount  of  discussion  and  the  reinforcement  of  a  member's  judg- 
ment by  that  of  his  colleagues.  Much  of  the  action  of  the  tax 
commissions  rests  upon  the  judgments  of  the  members.  Greater 
stability  is  assured  and  greater  confidence  will  be  reposed  in  the 
concerted  decision  of  three  men  than  in  the  conclusions  of  a  single 
individual. 

The  success  of  the  federal  department  of  internal  revenue  may 
be  cited,  however,  as  evidence  in  favor  of  the  single  commissioner 
type.  The  efficiency  of  the  federal  department  cannot  be  denied 
but  the  parallel  hardly  holds  between  this  department  and  the 
state  tax  commissions.  In  the  first  place,  the  internal  revenue 


STATE  TAX  DEPARTMENTS  1 35 

commissioner  is  amply  provided  with  the  funds  necessary  for  the 
organization  of  an  efficient  department,  while  many  of  the  state 
tax  commissions  have  been  seriously  handicapped  in  this  respect. 
Adequate  finances  have  permitted  an  efficient  internal  organiza- 
tion, with  elaborate  grading  of  responsibility.  On  the  other  hand, 
the  state  tax  commissioners  are  compelled,  in  all  but  the  most 
advanced  states,  to  assume  much  responsibility  and  to  perform 
considerable  amounts  of  detailed,  even  of  routine  labor.  In  the 
second  place,  the  character  of  the  federal  internal  revenue  system 
gives  greater  definiteness  to  the  work  of  the  revenue  commis- 
sioner. The  specific  taxes  on  commodities,  such  as  characterized 
the  internal  revenue  system  of  the  United  States  previous  to  the 
income  tax,  imposed  no  such  heavy  demands  upon  the  delibera- 
tive faculties  as  are  involved  in  the  valuation  of  railroads  or  the 
equalization  of  local  assessments.  The  federal  income  tax  makes 
larger  demands  and  the  extension  of  this  and  similar  federal  taxes 
may  require  a  corresponding  reorganization  of  the  internal 
revenue  department.  Thirdly,  under  the  federal  system  results 
are  assured  by  the  unlimited  authority  which  is  given  for  the 
enforcement  of  federal  laws.  If  state  tax  commissions  were  to 
order  the  listing  of  intangibles  by  the  same  methods  that  have 
been  employed  for  the  enforcement  of  the  tax  on  whisky,  the 
taxation  of  credits  would  be  as  unpopular  —  and  as  unhealthy 
—  as  prevention  of  "  moonshining."  In  the  one  case  public 
opinion  favors  enforcement  and  tolerates  even  the  resort  to  arms ; 
in  the  other  it  encourages  evasion  and  views  with  indifference  the 
amazing  spread  of  perjury  and  false  swearing.  Finally,  many 
responsible  subordinates  of  the  internal  revenue  department  hold 
their  positions  under  the  civil  service  and  are  assured  tenure 
relatively  more  stable  than  the  irregular  apprenticeship  which 
has  proved  so  costly  in  some  states. 

2,  Term  of  Office.  —  A  second  feature  to  be  noticed  is  the  long 
term.  Wisconsin  leads  with  an  eight-year  term,  while  nineteen 
states  have  a  six-year  period,  twelve  a  four-year  term,  and  in 
only  two  states  is  the  tax  commissioner  chosen  for  less  than  three 
years.  In  both  of  these  states,  Texas  and  Vermont,  the  modern 
tax  department  has  not  yet  been  developed.    This  tendency 


136  THE  STATE  TAX  COMMISSION 

toward  a  fairly  stable  tenure  of  ofi&ce  affords  opportunity  for  the 
members  to  become  thoroughly  famiUar  with  the  work  to  be  done. 
A  majority  of  the  board  will  normally  be  experienced  members 
and  the  importance  of  thoroughly  consistent  action  renders  the 
cumulative  experience  of  these  hold-over  members  very  signifi- 
cant for  successful  administration.  Further,  the  long  term  re- 
moves the  commission  from  the  pressure  of  current  poHtical 
movements  and  leaves  it  free  from  the  changing  fortunes  of  poKt- 
ical  parties.  This  advantage  can  only  be  stated  as  a  tendency 
since  much  will  depend  upon  the  poHtical  ideals  and  the  stand- 
ards of  pubhc  service  which  prevail  in  the  state.  The  injection 
of  politics  into  the  recent  Michigan  case  demonstrates  the  de- 
sirabiHty  of  complete  freedom  from  partizan  influences.^  The 
governor  must,  of  course,  possess  the  authority  to  remove  his  ap- 
pointees upon  proper  cause  shown.  But  unless  this  authority  is 
checked  by  requiring  cause  to  be  shown,  all  incentive  to  progress 
may  be  destroyed,  as  in  Alabama.^  Aside  from  such  direct  action, 
however,  which  is  ordinarily  resorted  to  only  in  the  most  extreme 
cases,  the  longer  term  tends  distinctly  to  lessen  the  dependence 
upon  the  ebb  and  flow  of  public  opinion  and  to  give  strength  for 
the  fearless  performance  of  duty,  a  task  none  too  easy  at  best  in 
the  field  of  tax  administration  where  capacity  and  moral  courage 
are  equally  essential  factors. 

Finally,  the  long  term  and  stable  tenure  of  office  are  valuable 
and  even  necessary  inducements  to  men  who  have  acquired  the 
special  knowledge  essential  for  the  proper  administration  of  the 
tax  laws.  The  certainty  of  tenure  may  permit  the  payment  of 
somewhat  lower  salaries  though  the  time  is  rapidly  passing  when 
a  state  can  afford  to  economize  by  employing  cheap  men,  or  by 
expecting  that  good  men  will  consent  to  serve  the  public  for  much 
less  than  they  can  command  elsewhere.  The  period  of  apprentice- 
ship which  many  political  appointees  serve  while  drawing  the 
salaries  of  capable  experts  will  be  minimized  by  adopting  new 
standards  of  capacity  and  a  new  conception  of  the  qualifications 
for  public  ofiice.  Until  comparatively  recent  times  fitness  for 
pubhc  service  has  been  one  of  the  least  essential  qualifications  of  a 
^  Cf.  below,  pp.  139,  293.  *  Cf.  below,  pp.  559,  560. 


STATE  TAX  DEPARTMENTS  1 37 

candidate.  This  idea  has  begun  slowly  to  give  way  under  the  pres- 
sure of  accumulated  inefficiency  in  public  administration.  No- 
where has  it  been  more  firmly  fixed  nor  its  consequences  more 
injurious,  than  in  taxation.  The  local  assessing  officials  have  long 
been  notoriously  inefficient;  the  sentiment  that  anyone  can  ad- 
minister the  tax  laws  has  just  begun  to  decline;  and  the  theory 
that  this  duty  should  be  committed  to  men  equipped  by  special 
training  and  experience  is  correspondingly  new.  The  remarkable 
success  that  has  been  achieved  by  the  Interstate  Commerce  Com- 
mission and  by  certain  state  administrative  boards  has  done  much 
to  bring  about  this  change  in  pubHc  sentiment.  The  day  of  the 
expert  administrator  is  dawning,  and  with  the  growing  complexity 
of  the  problems  of  modern  life  a  steady  advance  in  the  character 
and  quaUfications  of  the  men  who  are  called  to  fill  positions  of 
administrative  responsibihty  may  certainly  be  expected. 

With  regard  to  the  tenure  of  office,  the  situation  of  the  tax  com- 
missioners has  been  very  wholesome  and  the  long  legal  term  has 
actually  been  served  by  the  majority  of  the  appointees.  Michigan 
presents  a  rather  anomalous  situation  of  which  the  tangle  of  191 2 
was  an  example.  Of  a  certain  period  in  the  history  of  the  Michigan 
Tax  Commission  it  has  been  said:  ^  "  Ten  men  received  appoint- 
ment as  tax  commissioner  in  seven  years,  in  only  four  of  which  did 
the  number  of  commissioners  exceed  three.  .  .  ."Inconsequence, 
the  average  length  of  term  has  been  about  three  years  instead 
of  the  legal  term  of  six  years.  West  Virginia  has  attempted  to 
prevent  the  office  from  becoming  the  property  of  one  man  by  the 
absurd  provision  that  a  commissioner  shall  be  ineligible  to  suc- 
ceed himself  at  the  end  of  a  six-year  term,  whether  he  has  served 
six  years  or  not.  As  a  matter  of  fact,  in  the  first  period  of  six 
years,  three  men  served  as  tax  commissioner  and  the  last  incum- 
bent had  hardly  acquired  sufficient  experience  to  perform  efficient 
service  for  the  state  when  he  was  compelled  to  step  out.-  In  Con- 
necticut for  years  the  tax  commissioner  has  fought  a  ruiming 
fight  with  certain  interests  which  have  been  determined  to  oust 
him  and  his  recent  reappointment  by  a  politically  hostile  gov- 

'  Hedrick,  History  of  Railroad  Taxation  in  Michigan,  p.  48. 
*  West  Virginia  Tax  Commissioner,  Report,  1909-10,  p.  70. 


138  THE  STATE  TAX  COMMISSION 

ernor  and  council  was  not  only  a  personal  triumph  but  a  victory 
for  administrative  efficiency  everywhere.  The  most  capable  of 
the  first  three  appointees  on  the  Ohio  commission  was  chosen 
for  the  shortest  term  and  the  commission's  work  suffered  materi- 
ally by  his  early  retirement.  While  it  cannot  be  said  that  in  all 
states  poKtical  motives  have  entirely  disappeared  in  the  selection 
of  men  for  this  important  office,  yet  it  is  true  that  to  a  consider- 
able extent  the  long  legal  term  has  meant  stable  tenure  of  office. 

3.  Salary.  —  The  standards  of  administrative  efficiency  which 
have  been  found  to  be  essential  for  the  best  performance  of  the 
complex  and  increasingly  important  duties  of  tax  administration 
demand  an  adequate  salary  in  addition  to  a  fairly  stable  tenure  of 
office.  Low  salaries  draw  only  the  swarms  of  professional  office- 
seekers,  the  bane  of  efficiency  in  American  public  life.  Higher 
salaries  will  not  diminish  the  number  nor  the  insistence  of  the  job- 
hunters  but  they  will  also  call  forth  men  of  greater  ability  to 
whom  the  public  service  may  safely  be  entrusted.  With  respect 
to  the  salaries  paid  the  states  fall  into  two  groups.  One  group  of 
about  nineteen  states  pays  fairly  attractive  salaries  ranging  from 
$3000  to  $6000;  the  other  group  pays  $2500,  with  the  exception 
of  Arkansas,  in  which  the  compensation  is  only  $2400,  and  South 
Dakota,  where  only  $2000  is  paid.  The  New  Mexico  tax  com- 
missioners are  allowed  $10  per  diem  with  reasonable  travelling 
expenses,  but  they  are  not  permitted  to  remain  in  session  for 
more  than  ten  days  at  a  sitting,  nor  shall  they  receive  compensa- 
tion or  expenses  for  more  than  ninety  days  in  the  aggregate  in  any 
one  year.i  Admitting  that  the  salary  is  a  relative  matter,  yet  it 
can  hardly  be  questioned  that  the  salaries  in  the  second  group  are 
too  low.  The  great  marvel  is  that  for  the  small  salaries  paid  men 
can  be  found  to  render  as  faithful  service  as  has  been  given  in 
administering  the  tax  laws. 

4.  Method  and  Basis  of  Selection.  —  In  every  state  the  power  of 
appointing  the  members  of  the  tax  commission  is  vested  in  the 
governor,  though  in  Colorado  the  governor  and  treasurer  act 
together.  The  selections  are  to  be  ratified  in  most  instances  by  the 
senate  or  the  executive  council.  The  governor  has  also  the  author- 

1  Laws  of  New  Mexico,  1915,  ch.  54. 


STATE  TAX  DEPARTMENTS  1 39 

ity  to  suspend  a  commissioner,  and  after  filing  charges  which 
constitute  a  true  bill  against  the  incumbent,  to  remove  him  from 
office.  In  Oregon  and  Michigan  the  governor  has  been  made  a 
member  of  the  commission  for  the  performance  of  certain  func- 
tions. In  neither  state  can  it  be  shown  that  his  presence  on  the 
board  has  been  of  any  advantage,  while  it  has  probably  been  a 
positive  detriment  at  times.  It  was  asserted  that  the  Governor 
of  Michigan  did  not  attend  any  of  the  meetings  of  the  state  board 
of  assessors  and  refused  to  sign  the  assessment  rolls  until  assured 
by  the  attorney-general  that  the  state  could  collect  no  taxes  from 
the  pubhc  service  corporations  until  he  had  complied  with  that 
legal  formality.^ 

Even  more  fundamental  than  this  control  by  the  governor  over 
the  members  of  the  commission  is  the  statutory  basis  of  appoint- 
ment, according  to  which  is  determined  the  active  personnel  of  the 
board.  Again  the  states  fall  into  two  groups,  one  making  fitness 
and  knowledge  of  tax  matters  the  chief  basis,  and  the  other  leav- 
ing the  question  of  qualifications  to  the  antiquated  basis  of  poHti- 
cal  afl&liation.  After  all,  it  is  the  equipment,  mental  and  moral, 
of  the  administrators  which  determines  their  success  in  applying 
any  laws.  The  political  "  spoils  system  "  is  the  fountainhead  of 
governmental  inefl&ciency.  In  tax  administration  there  is  an 
especial  need  of  the  elemental  virtues  of  hpnesty,  impartiality, 
moral  courage  and  good  sense,  as  well  as  a  more  technical  prepara- 
tion for  the  special  work  to  be  done.  It  is  hopeless  to  expect  these 
qualifications  in  any  unusual  degree  from  the  political  favorite 
whose  claims  to  the  position  are  based  upon  entirely  different 
grounds.  It  has  been  an  exceedingly  fortunate  circumstance  that 
so  few  of  the  states  permit,  or  at  least  require,  a  selection  upon  a 
partizan  basis  alone.  Indiana  and  Ohio  illustrate  the  partizan 
basis  of  selection,  and  the  work  of  these  commissions  has  not 
heightened  the  respect  in  which  such  a  basis  of  appointment  is 
held. 

The  conditions  which  prevailed  in  Colorado  at  the  time  of  the 
enactment  of  the  tax  commission  bill  may  serve  to  illustrate  the 

*  Cf.  Reply  of  Commissioner  Shields  to  the  charges  of  Governor  Osbom,  Detroit 
Free  Press,  June  13,  191 2. 


140  THE  STATE  TAX  COMMISSION 

possible  influence  of  political  manipulation.  Certain  persons  had 
been  prominent  in  promoting  the  bill  for  a  state  tax  commission, 
but  after  the  legislative  support  had  been  organized  the  proceed- 
ings halted  and  interest  flagged,  to  the  peril  of  the  bill  at  that 
session.  Upon  inquiry  it  developed  that  certain  leaders  in  the 
campaign  for  the  bill  had  aspirations  for  appointment  to  the  new 
commission.  As  they  were  personally  objectionable  to  the  legis- 
lative steering  committee,  the  latter  had  abandoned  the  measure 
to  its  fate.  The  state  treasurer  gave  his  guarantee  that  the 
objectionable  persons  were  not  to  be  appointed  and  to  hold 
him  personally  to  this  promise  the  state  treasurer  was  made 
responsible  with  the  governor  for  the  appointment  of  the  tax 
commissioners.^ 

The  principal  features  of  the  organization  of  state  tax  commis- 
sions, as  outlined  thus  far,  are  the  product  of  a  considerable  period 
of  evolution,  in  the  course  of  which  the  states  have  emerged  from 
the  jungle  of  a  "  spoils  "  regime  and  entered  upon  the  broad  high- 
way of  the  merit  system.  While  not  all  states  have  made  equal 
progress  in  the  eHmination  of  the  purely  political  appointee,  there 
are  few  that  do  not  offer  some  encouraging  signs  while  many  have 
shown  marked  improvement.  The  tendencies  that  have  been  in 
evidence  in  the  development  of  fiscal  administration  have  been 
manifested  also  in  other  lines,  as  the  following  summary  of  recent 
tendencies  in  the  organization  state  of  railroad  commissions 
shows :  2 

Lastly,  there  are  definite  tendencies  in  the  organization  of  the  new  com- 
missions. The  movement  is  away  from  the  single  commissioner  to  a  com- 
mission of  three  or  more.  Fourteen  of  the  commissions  {i.  e.,  of  the  fifteen 
estabUshed  between  1902  and  1907)  consist  of  three  members,  and  New 
York's  statute  provides  for  two  commissions,  each  consisting  of  five  mem- 
bers. The  movement  is  also  toward  a  long  tenure  of  office,  eight  of  the 
statutes  providing  for  a  six-year  term,  two  for  five  years,  four  prescribe  a 
four-year  term,  and  but  one  clings  to  a  term  of  three  years.  Contrary  to 
what  the  tendency  was  in  1902,  ten  of  the  new  commissions  are  appointive 
and  five  elective. 

^  Personal  Interview  with  the  Secretary  of  the  Colorado  State  Board  of  Equalization, 
Aug.  3,  1911.    Cf.  also  Laws  of  Colorado,  1911,  ch.  216,  §  3. 

*  Huebner,  "  Five  Years  of  State  Railroad  Legislation,"  Ann.  Am.  Acad.,  1908, 
xxxii,  p.  143. 


STATE  TAX  DEPARTMENTS  I4I 

5.  Appropriations  and  Equipment.  —  There  remains  one  topic, 
which  was  not  suggested  by  the  tabular  view  given  above.  To  a 
very  considerable  degree  the  efl&ciency  of  an  administrative  body 
depends  upon  the  facilities  provided  for  the  proper  performance 
of  its  work.  In  many  branches  of  the  public  service  the  character- 
istic American  way  has  been  to  alternate  the  most  reckless 
extravagance  with  a  pinching  economy,  with  equally  disastrous 
results  from  both  policies.  The  financial  support  which  has 
been  afforded  the  tax  commissions  in  different  states  has  ranged 
through  all  gradations  from  the  carte  blanche  of  the  Wisconsin 
commission  to  the  failure  of  the  Arkansas  legislature  to  provide 
an  appropriation  for  its  new  commission. ^  In  general  the  policy 
has  been  too  economical,  though  the  Arkansas  incident  was 
evidently  an  oversight.  In  Indiana  each  commissioner  is  allowed 
$1000  for  travelHng  expenses,  a  total  of  $3000.  Practically  no 
other  office  expenses  are  incurred  beyond  the  employment 
of  a  few  stenographers  and  the  printing  of  the  blank  forms 
and  the  various  reports.  The  deputy  auditor  of  state  serves 
as  secretary  of  the  board.  In  Kansas  the  tax  commission- 
ers were  found  in  191 1  to  be  performing  routine  work  which 
could  have  been  done  by  any  ordinary  clerk,  and  in  the 
rush  season  of  corporation  assessment  the  members  were 
compelled  to  work  late  at  night  as  well  as  all  day  because  of 
deficient  appropriations  for  clerical  assistance.  In  Washington, 
Oregon,  and  Minnesota  reliance  has  been  placed  upon  the 
results  of  investigations  into  real  estate  values  from  which  very 
important  conclusions  have  been  drawn,  though  the  method  of 
compiling  these  ratios  reveal  fundamental  weaknesses  which  the 
inadequate  financial  resources  make  it  impossible  altogether  to 
eliminate.  For  this  false  economy  the  commission  is  itself  some- 
times to  blame.  The  Ohio  commission  rejected  the  Wisconsin 
"  sales  method  "  ostensibly  on  account  of  the  expense,  though 
the  statistician  of  the  Wisconsin  commission  estimated  that  the 
system  could  be  installed  in  Ohio  for  $6000  per  year  if  kept  free 
from  the  meddling  interference  of  the  politicians.^   The  Indiana 

'  Arkansas  Tax  Commission,  Report,  1910,  p.  45. 

*  Personal  Letter  from  A .  E.  James,  Statistician  to  Wisconsin  Tax  Commission, 
June  19,  191 2. 


142  THE  STATE  TAX  COMMISSION 

board  offered  the  desire  to  economize  as  the  reason  for  not  print- 
ing valuable  statistics  in  1910.^  The  taxpayers  have  not  yet  fully 
appreciated  the  irony  of  creating  departments  of  high-salaried 
men  and  failing  to  provide  them  with  the  proper  equipment  for 
their  work.  The  earlier  Wisconsin  policy  of  carte  blanche  is  in 
principle  equally  bad,  and  it  has  recently  been  abandoned  for  a 
system  of  definite  appropriations  based  upon  the  estimates  of  the 
commission.  It  cannot  be  said  that  the  grant  of  free  rein  was 
abused  in  that  state,  since  the  result  was  the  development  of  one 
of  the  most  efficient  administrative  organizations  in  the  United 
States,  at  an  expense  that  was  not  excessive.  It  is  entirely  pos- 
sible, however,  that  the  same  efficiency  could  have  been  attained 
at  even  a  lower  cost  under  a  system  of  definite  appropriations. 
At  any  rate  the  blanket  appropriation  is  crude  and  unscientific 
and  is  an  evidence  of  the  backward  condition  of  the  budget 
system  of  an  otherwise  fairly  progressive  state.^ 

The  two  most  elaborately  equipped  and  organized  tax  depart- 
ments in  the  United  States  at  the  present  time  are  those  of  New 
York  and  Wisconsin.  Of  these  the  former  has  the  more  complete 
and  expensive  organization,  but  because  of  the  better  tax  law 
and  more  progressive  public  opinion  under  which  the  latter  has 
operated  it  has  accomplished  broader  results.  In  addition  to  the 
general  office  the  New  York  board  has  organized  six  distinct 
bureaus,  each  in  charge  of  a  responsible  head,  and  has  appor- 
tioned the  work  among  them  thus :  I.  Mortgage  tax;  2.  Electric- 
ity, Gas  and  Water  (special  franchise);  3.  Railroads  (ditto); 
4.  Telegraph  and  Telephone  (ditto);  5.  Local  supervision; 
6.  Filing.  This  arrangement  emphasizes  the  relative  importance 
of  the  commission's  activities.  Three  bureaus  are  assigned  to  the 
assessment  of  special  franchise  taxes  and  one  to  the  mortgage  tax. 
The  department  for  the  supervision  of  local  assessments  has  been 
most  recently  added,  but  with  the  vigorous  use  now  being  made  of 
its  supervisory  powers  by  the  New  York  Commission  this  branch 
of  the  work  promises  to  become  one  of  the  most  important.   The 

1  Indiana  State  Board  of  Tax  Commissioners,  Report,  1910,  p.  5. 

*  Cf.  Agger,  The  Budget  in  the  American  Commonwealths,  for  a  description  of  the 
condition  of  state  budgets.  Also  below,  ch.  8,  for  the  improvements  in  state  finance 
introduced  by  the  Wisconsin  commission. 


STATE  TAX  DEPARTMENTS  1 43 

principal  duty  of  this  department  at  present  is  the  supervision  of 
the  local  assessment  and  equalization  methods.^ 

The  expense  has  grown  by  leaps  and  bounds  until  today  the 
New  York  Commission  is  spending  more,  with  one  exception,  than 
any  other  tax  department  in  the  country.^  The  phenomenal 
increase  is  shown  by  the  figures  below,  for  various  annual  periods :' 

Appropriations  for  the  New  York  Tax  Commission 

Year  Appropriation  Year  Appropriation 

1898 $18,200  1914 $201,711 

1902 60,500  1916 255,302 

1911 118,030 

Some  explanation  for  this  high  level  of  outlay  may  be  found  in  the 
fact  that  all  expenses  for  such  services  are  normally  higher  in  the 
East. 

The  Wisconsin  commission  has  organized  four  main  bureaus  — 
general,  statistical,  income  tax,  and  inheritance  tax.  In  the 
general  office,  which  is  under  the  direct  supervision  of  the  com- 
mission, there  is  provided  a  secretary,  a  chief  clerk,  and  the 
necessary  stenographic  assistance.  The  heads  of  the  other 
bureaus  are  each  provided  with  assistants  and  the  necessary 
ofiice  and  field  forces.  The  statistical  department  keeps  from  three 
to  fifteen  men  in  the  field  collecting  sales  data  and  supervising  the 
installation  of  local  uniform  accounting  systems.  The  income  tax 
bureau  has  supervision  over  the  forty-one  assessors  of  incomes. 
The  cleavage  lines  run  somewhat  differently  in  the  two  organiza- 
tions. In  Wisconsin  the  commission  has  retained  under  its  own 
direction  the  more  general  aspects  of  each  function,  and  has  dele- 
gated to  the  diff'erent  bureaus  the  more  direct  supervision  of  the 
departmental  duties ;  in  New  York  the  various  phases  have  been 
more  completely  delegated  to  the  several  bureaus  and  the  com- 

1  Cf.  below,  ch.  6. 

^  This  exception  is  the  Massachusetts  tax  department,  which  has  received  the 
large  appropriation  of  $310,000  for  191 7,  for  the  administration  of  the  new  income 
tax.  The  addition  of  the  regular  appropriation  of  $108,750  for  ordinary  expenses 
places  the  Massachusetts  tax  department  in  the  lead  in  total  expenditures. 

*  Compiled  from  the  annual  reports  of  the  Comptroller.  The  amount  requested 
for.1917  was  $301,195. 


144  ^^^  STATE  TAX  COMMISSION 

missioners  are  relieved  from  the  necessity  of  direct  contact  with 
the  actual  operations  of  the  tax  system,  a  relief  which  may  lead 
to  avoidance  of  the  intensive  study  of  the  problem  which  has 
been  continued  by  the  members  of  the  Wisconsin  commission. 

The  material  equipment  of  these  two  commissions  is  no  less 
extensive  and  complete  than  the  personal  organization.  Both 
have  excellent  libraries  on  finance,  with  skilled  librarians  in 
charge.^  Cases  and  cabinets  for  filing  records  and  correspondence, 
adding  machines,  rapid  calculators,  and  numerous  other  devices 
have  been  provided.  The  correspondence  of  the  Wisconsin  com- 
mission has  been  indexed  by  subjects  and  the  library  has  been 
catalogued.  The  whole  mass  of  information  which  is  being  accu- 
mulated is  constantly  ready  at  hand  with  a  minimum  of  delay  for 
the  investigator  as  well  as  the  members  of  the  commission. 

Several  other  state  conamissions  are  fairly  well  equipped,  but 
none  were  found  to  be  so  well  pirovided  for  as  those  of  New  York 
and  Wisconsin.  West  Virginia  was  the  only  state  west  of  the 
Appalachians  to  employ  a  permanent  statistician.  The  Minne- 
sota commission  has  had  the  assistance  of  statisticians  from  the 
University  in  various  stages  of  its  work.  The  statistical  work  of 
the  other  western  commissions  has  been  done  by  the  chief  clerk, 
the  secretary  or  a  member  of  the  commission  who  has  happened 
to  have  a  bent  for  figures.  The  library  of  the  Minnesota  com- 
mission was  found  in  191 1  to  be  the  largest  of  the  special  libraries, 
but  it  was  uncatalogued  and  there  was  no  special  librarian  in 
charge.  Aside  from  these  three  instances,  no  other  collections  of 
Uterature  on  public  finance  of  any  significance  have  been  made. 
Many  of  the  western  commissions  were  found  to  be  inadequately 
quartered  and  suffering  from  insufficient  financial  support.  The 
Indiana  board  possessed  the  most  limited  equipment  and  quar- 
ters of  any  of  the  commissions  visited  in  191 1.  It  occupied  one 
room  in  the  capitol  building.  This  room  adjoined  the  ofiices  of  the 
auditor  of  state,  by  whose  clerks  the  necessary  statistical  and 
stenographic  work  was  done.  The  deputy  auditor  has  always 
served  as  secretary  of  the  commission.   There  were  no  adequate 

^  The  library  of  the  New  York  commission  was  damaged  by  the  fire  in  the 
capitol  building  in  19 12. 


STATE  TAX  DEPARTMENTS  1 45 

facilities  for  the  collection  and  preservation  of  data,  and  the 
biennial  reports  were  not  to  be  found  except  in  the  archives  of 
the  state  library.^ 

^  The  writer  visited  Indianapolis  for  the  purpose  of  gathering  data  for  this  study- 
in  191 1.  Subsequent  visits  were  made  in  March  and  September,  1916.  The  quar- 
ters had  not  been  extended  in  19 16. 


146  THE  STATE  TAX  COMMISSION 


APPENDIX  TO  CHAPTER  IV 

Some  Statistics  on  the  Cost  of  Various  Tax  Commissions 

The  expenditures  of  a  few  of  the  representative  tax  commissions  are  here- 
with given.  These  figures  are  not  always  pubUshed  in  the  periodical  reports, 
and  in  few  cases  is  there  a  detailed  analysis  of  the  outlays. 

The  Wisconsin  Tax  Commission  * 

Year  Total  expenses  Year  Total  expenses 

1900 $16,412  1912 $121,204 

1904 45,o"  1913 173)464 

1908 56,173  1914 185,805 

1909 47,009  1915 196,192 

1910 57,378  1916 180,587 

1911 56,764 

The  marked  increase  after  1903  was  due  to  the  assumption  of  the  railroad 
assessment.  The  additional  cost  of  the  income  tax  department  and  the  ad- 
ministration of  the  local  accounting  systems  have  been  most  responsible  for 
the  increases  in  recent  years.  For  191 6  the  detailed  expenditures  were  as 
follows: 

General  office $27,989 

Statistics  and  accounts 27,891 

Joint  engineering  department 14.843 

Inheritance  tax 5,866 

Income  tax 

General  office 8,002 

Field 95,993 


Total $180,587 

In  1916  the  tax  commission  appropriation  was  credited  with  $8,757.87  as 
reimbursements  for  installing  systems  of  accounts  and  auditing  records  for 
municipalities.  The  cost  of  reassessments  and  reviews  of  assessments  are 
no  longer  charged  to  the  commission.^  The  field  expenses  for  the  adminis- 
tration of  the  income  tax  include  the  salaries  of  the  income  tax  assessors. 

The  expenses  of  the  Michigan  board  of  tax  commissioners  since  1913 
have  been  as  follows: 

Year  Expenditures 

1913 $165,001 

1914 173,885 

1915 151,328 

1916 205,405 

'  Wisconsin  Tax  Commission,  Report,  1914,  pp.  2-8;  ibid.,  1916,  p.  2. 
2  Laws  of  Wisconsin,  191S1  ch.  627. 


STATE  TAX  DEPARTMENTS  1 47 

The  biennial  appropriations  for  the  Washington  Board  of  Tax  Commis- 
sioners have  been  as  follows: ' 

Biennium  Appropriation 

1905-06 $27,000 

1907-08 42,000 

1909-10 37,600 

1911-12 40,600 

1913-14 43,600 

1915-16 41,000 

Appropriations  for  the  Kansas  Tax  Commission,  by  principal  items  of 
expenditure,  have  been  as  follows :  ^ 


Year 

Salaries 

Contingent 

Extra  clerk 
hire 

Travelling 
expense 

Accounting 
system 

Totals 

1008 

$10,700 
10,700 
10,700 
10,700 
10,700 
10,700 
10,700 
10,700 
11,839 

$5,197.26 
4,228.60 
1,982.80 

1,050.13 
1,956.80 
1,647.00 
1,277.00 
1,310.00 
1,452.00 

$1,838.00 

2,775-23 
3,485-88 
3,675-00 
3,123.00 
3,093.00 
1,846.00 

$1,000.00 

1,355-66 

982.91 

1,647.29 
1,571.00 

1,500.00 
1,135-00 
1,858.00 

$1,027.84 

27. 
35- 

$15,897.26 

1909 

1910 

15,928.60 
15,876.46 

1911 

15,508.27 

IQ12 

10,817.11 

loi  z 

17,594.00 

1014. 

16,628.00 

IQIC 

16,274.00 

IQI6 

16,996.00 

The  expenditures  of  the  West  Virginia  Tax  Commissioner  have  been  as 
follows :  ^ 


Year  Expense 

1905 $8,437 

1906 13,896 

1907 16,645 

1908 18,635 

1909 26,220 

1910 34,709 


Year  Expense 

1911 $25,070 

1912 24,122 

1913 19,310  (9  months) 


1914. 

1915- 
1916. 


31,290 
56,701 
63,368 


'  From  the  reports  of  the  tax  commission. 
'  Data  supplied  by  the  chairman  of  the  tax  commission. 

'  From  the  reports  of  the  tax  commissioner.     The  figures  include  the  cost  of  the  department  of 
public  accounting  after  iqo8. 


148 


THE  STATE  TAX  COMMISSION 


The  Ohio  Tax  Commission  presents  the  following  simmaary  of  its  expend- 
itures: ^ 


1910 

(6  months) 

1911 

1912 

1913 

1914 

191S 

Salaries,  clerks,  etc.  ... 

Rent  of  offices 

Contingent 

Travelling 

Furniture,  carpets 

Steel  file  cases 

Quadrennial  appraisal  . 

$13,948 
928 

1,577 
484 

1,500 
290 

$54,329 
3,865 
4,643 
1,396 
1,854 
310 
416 

$50,006 
4,230 
2,540 

1,525 
200 

516 

$48,687 

4,072 

2,269 

1,137 

3 

402 

$55,893 
3,800 

3,598 

4,048 

10 

251 

$42,911 

3,999 

2,546 

1,403 

298 

82 

Totals 

$18,729 

$66,816 

$59,018 

$56,573 

$67,601 

$51,242 

'  Ohio  Tax  Commission,  Report,  1915,  p.  29. 


CHAPTER  V 

THE  STATE  BOARD  OF  TAX  COMMISSIONERS  OF 
INDIANA  1 

The  significance  of  the  law  passed  by  Indiana  in  189 1  may  best  be 
appreciated  by  recalling  the  condition  of  tax  administration 
throughout  the  country  at  that  time.  The  centralizing  process 
had  begun  and  numerous  state  boards  for  equalization  and  for 
corporate  assessment  had  been  created.  In  the  assessment  of 
corporations  material  gains  had  been  achieved,  but  the  conditions 
were  still  quite  unsatisfactory  because  of  the  limited  powers  and 
ex  officio  character  of  these  early  boards. ^  On  the  other  hand  the 
boards  of  equalization  had  proved  quite  incapable  of  checking 
the  deterioration  of  the  general  property  tax.  The  weakest  link 
in  the  chain  was,  as  it  had  always  been,  the  local  assessor.  None 
of  the  boards  established  previous  to  1891  had  the  slightest  con- 
trol over  his  acts ;  and  without  that  control  his  errors  and  willful 
violations  of  law  were  perfectly  secure  against  correction.  True, 
the  remedy  of  impeachment  was  available,  but  everywhere  the 
courts  required  proof  of  intent,  which  was  always  difficult  to 
obtain,  and  there  was  no  remedy  for  sheer  incompetence.  In 
California  the  state  board  of  equalization  had  attempted  to 
exercise  a  very  slight  corrective  influence,  but  it  was  quickly 
checked  by  the  courts.^  The  gravity  of  the  situation  had  been 
appreciated  by  numerous  special  tax  commissions  that  had  been 
created  previous  to  1891,^  but  in  most  instances  many  years  were 
destined  to  elapse  before  the  suggestions  of  these  bodies  were  to 
bear  fruit.  Aside  from  these  transient  centers  of  thought,  there 
was  Uttle  appreciation  anywhere  of  the  possibility  of  reform 
through  greater  administrative  centralization. 

^  Rawles,  Centralizing  Tettdencies  in  the  Administration  of  Indiana,  ch.  6,  gives 
valuable  historical  material. 

^  It  will  be  remembered  that  in  some  cases  the  same  board  performed  both 
functions.     Cf.  above,  p.  34. 

*  Cf.  above,  pp.  89  ff.  *  Cf.  Chapman,  op.  cit.,  pp.  96,  97. 

149 


150  THE  STATE  TAX  COMMISSION 

The  exact  origin  of  the  idea  in  Indiana  is  obscure.  There  had 
been  a  long  preliminary  period  of  experiment  in  which  many  dif- 
ferent forms  of  tax  administration,  more  or  less  centralized,  were 
tried;  but  in  none  of  the  early  administrative  experiments  had 
there  been  central  control  over  the  original  local  assessments.  The 
assessor  had  been  at  different  times  a  county  and  a  township 
official ;  ^  the  county  board  of  equalization  had  been  at  one  time 
an  appointive,  at  another  time  an  ex  officio,  board;  ^  and  in  1852 
state  and  district  boards  of  equalization  had  been  established.^ 
The  state  board  of  equalization  was  reorganized  in  1872,^  but  it 
was  unable  to  check  competitive  undervaluation  and  the  spread 
of  increasingly  inequitable  assessments.^  The  assessment  of 
lands  and  lots  actually  declined  from  1879  to  1889,  while  the  total 
for  personal  property  increased  but  slightly  in  this  time.  Central 
assessment  of  corporations  was  introduced  in  1872,  but  the  results 
had  been  hopelessly  inadequate  and  the  initial  suggestion  for  the 
establishment  of  the  board  of  state  tax  commissioners  was  prob- 
ably prompted  by  the  desire  to  increase  the  taxes  on  this  class  of 
property.^  The  state  auditor  recommended  in  1890  the  appoint- 
ment of  one  or  more  agents  to  gather  data  upon  which  a  more 
equitable  corporate  assessment  could  be  made.^  In  1891  Gover- 
nor Hovey  proposed  the  establishment  of  a  board  of  railroad 
commissioners  who  should  have  general  supervision  over  the 
railroads,  with  extensive  powers  of  investigation  and  examination 
of  books  and  property.*   In  this  form  the  plan  failed,  as  did  one 

^  Cf.  Rawles,  op.  cit.,  ch.  6. 

^  Ibid.,  pp.  264,  270. 

'  Revised  Statutes  of  Indiana,  1852,  i,  p.  274,  §  7. 

*  Laws  of  Indiana,  1872,  ch.  37,  §  284. 

'  The  platforms  of  both  Republican  and  Democratic  parties  in  1886  demanded 
a  better  equalization  of  assessments. 

*  The  IlUnois  special  commission  of  1886  had  proposed  a  permanent  state  tax 
commission.  The  suggestion  may  have  been  taken  from  this  report.  Cf.  address 
by  the  author  of  the  bill,  Judge  T.  E.  Howard,  at  the  Buffalo  Tax  Conference,  1901, 
Proceedings,  pp.  84-88.  J.  P.  Dunn,  who  was  state  librarian  at  the  time,  gives  an 
account  of  the  factors  which  led  to  the  bill,  in  Proceedings  of  First  State  Tax  Con- 
ference, 1914,  pp.  33-36.  Cf.  also  Dunn,  The  New  Tax  Law  of  Indiana,  Indi- 
anapolis, 1892,  p.  6. 

^  Atiditor's  Report,  1890,  p.  8. 

*  Rawles,  op.  cit.,  p.  292. 


TAX  COMMISSIONERS  OF  INDIANA  151 

for  separation  of  the  sources  of  state  and  local  revenue  but  the  bill 
creating  the  new  tax  board  emerged  during  the  session,  probably 
as  a  compromise  measure. 

The  pressure  for  tax  reform  was  made  stronger  by  the  condition 
of  the  state's  revenues.  The  state  debt  was  growing  at  the  rate  of 
$500,000  annually.^  A  few  years  after  the  administrative  changes 
were  made  the  debt  was  being  reduced  at  the  rate  of  $800,000 
annually.' 

The  act  of  March  6,  1891,  which  inaugurated  the  new  era  in 
taxation  in  Indiana,  made  two  very  important  changes  in  the 
administrative  organization  and  one  in  the  wording  of  the  tax 
law.  The  latter  substituted  the  standard  of  "  true  cash  value  " 
for  that  of  "  fair  value,"  which  had  previously  been  the  basis  of 
assessment.^  Under  the  criterion  of  fair  value,  it  had  been  pos- 
sible for  the  assessors  honestly  to  depart  from  the  full  valuation 
and  to  do  so  without  being  technically  guilty  of  violating  the  law 
as  long  as  they  applied  the  same  standard  to  the  entire  district. 
This  verbal  change  established  one  definite  and  uniform  standard ; 
though  without  proper  administration  it  was  no  guarantee 
against  inequitable  assessment. 

The  first  of  the  two  administrative  improvements  was  the 
revival  of  the  elective  ofiice  of  county  assessor.  The  revival  was 
not  a  reversion  to  the  earlier  type,  however,  but  a  distinct  and 
valuable  contribution  to  the  new  form  of  administrative  organ- 
ization then  in  process  of  development.  The  earlier  county 
assessor  had  been  the  chief  assessing  officer,  over  whom  no 
central  control  existed;  the  later  county  assessor  was  a  super- 
visory official  through  whom  direct  and  effective  contact  was  to 
be  estabUshed  and  maintained  between  the  central  head  and  the 
local  members  of  the  fiscal  organization. 

The  second  improvement  was  the  creation  of  the  board  of  state 
tax  commissioners.  This  new  board  superseded  the  state  board 
of  equalization  and  took  over  its  functions  of  equalization  and 
corporation  assessment.   In  addition,  and  most  significant  for  the 

1  Auditor's  Report,  1890,  pp.  7,  8. 

^  State  Board  of  Tax  Commissioners,  Report,  1895,  pp.  4,  7. 

^  Laws  of  Indiana,  1891,  ch.  99. 


152  THE  STATE  TAX  COMMISSION 

new  direction  of  tax  reform,  the  new  board  was  given  general 
supervision  over  the  tax  system.  This  control  was  chiefly  advisory 
and  it  proved  insufficient  to  prevent  in  Indiana  the  recurrence  of 
the  old  abuses.  But  it  was  the  beginning  of  a  new  administrative 
policy  and  the  first  results  accomplished  were  sufficiently  valu- 
able to  demonstrate  the  possibilities  of  central  control. 

The  board  was  originally  composed  of  the  governor,  the  secre- 
tary, and  auditor  of  state,  and  two  members  appointed  by  the 
governor.  The  retention  of  the  state  executive  officers  on  the  new 
board  avoided  a  complete  break  with  the  past;  but  this  advan- 
tage was  overbalanced  by  the  disadvantages  of  ex  officio  members. 
The  Indiana  plan  has  been  followed  in  some  other  states  and 
nowhere  have  the  results  been  improved  thereby.  In  1907  a  third 
appointive  member  was  substituted  for  the  governor.^  This 
change  gave  a  majority  to  the  appointive  members,  supposedly 
the  experts  on  taxation,  but  the  ruts  of  customary  procedure  had 
by  this  time  worn  too  deep  to  permit  of  radical  departure  from  the 
former  practices  and  general  attitude  toward  the  problem.  The 
first  indications  of  a  break  with  the  reactionary  attitude  so  long 
characteristic  of  the  Indiana  board  have  come  only  with  the 
complete  change  of  personnel  since  19 10. 

Equalization 

The  possibilities  of  equalization  have  remained  almost  unde- 
veloped in  Indiana.  The  direct  descent  of  the  board  of  tax  com- 
missioners from  the  earlier  board  of  equalization  insured  a  certain 
continuity  of  practice;  the  statutory  limitations  have  always 
compelled  the  use  of  superficial  and  mechanical  methods  of 
equahzation;  and  thus  environment  has  finished  what  heredity 
began.  The  board  of  tax  commissioners  is  required  to  hold  three 
sessions  annually.^  The  first  session  is  for  the  assessment  of  the 
public  utilities  and  may  last  fifty  days.  The  second  session  must 
close  in  twelve  days  and  in  this  time  the  board  must  hear  appeals 
from  the  public  utilities  and  consider,  for  not  more  than  five  days, 
the  general  property  tax  returns  from  the  counties.    The  third 

'  Laws  of  Ittdiana,  1907,  ch.  93. 

^  Tax  Laws  of  Indiana,  ed.  of  1912,  pp.  144-146,  154. 


TAX  COMMISSIONERS  OF  INDIANA  1 53 

session  is  given  over  to  appeals  and  applications  for  revision  of 
assessment  and  the  equalization  of  general  property  assessments. 
The  business  of  this  session  must  be  completed  in  fifteen  days, 
though  an  extension  to  twenty  days  is  allowed  in  the  years  in 
which  real  estate  is  to  be  equalized.  A  further  special  extension  of 
not  more  than  ten  days  in  any  one  year  is  authorized  provided  the 
press  of  business  to  be  transacted  requires  it. 

The  time  that  may  be  given  to  equalization  consists,  therefore, 
of  the  five  days  of  the  second  session  and  such  part  of  the  third 
session  as  may  be  devoted  to  that  purpose.  When  it  is  remem- 
bered that  the  final  session  must  afford  opportunity  for  all  of  the 
appeals  which  may  be  carried  by  individuals  to  the  board,  the 
prescribed  limits  of  this  session,  even  with  the  optional  extensions, 
appear  entirely  too  short  for  the  careful  investigation  of  local 
assessments.  The  board  has  sometimes  realized  this  fact  and  has 
occasionally  recommended  an  extension ;  ^  but  it  has  expressed  no 
deep-seated  conviction  of  the  futility  of  equalizations  so  con- 
ducted. On  the  contrary,  it  has  been  disposed  at  times  to  regard 
the  results  with  considerable  satisfaction,  as  in  the  following 
comment  upon  the  real  estate  revaluation  of  1899:  ^ 

The  township  assessors  and  the  county  boards  of  review  were  so  thorough 
and  exacting  in  their  work,  and  so  accurate  and  judicious  in  their  valuation, 
that  when  such  valuations  were  certified  to  this  board  and  compiled,  it  was 
found  that  few  changes  were  necessary. 

Again,  in  1903,  real  property  was  said  to  have  been  put  on  the 
duplicate  at  a  "  fair  cash  value."  ^  The  county  assessors  were 
told  in  1914  that  Indiana  had  the  best  tax  law  and  was  getting  the 
best  results  in  assessment,  of  any  state  in  the  Union.**  The 
utterly  inadequate  figures  published  by  the  board  make  it  impos- 
sible to  examine  these  claims,  especially  as  to  the  assessment  of 
personal  property,  for  which  no  figures  are  published  except  the 
county  aggregates.  Such  tests  as  are  possible,  however,  point  to 
the  conclusion  that  a  considerable  degree  of  inequality  still 
prevails  in  the  local  assessments. 

^  State  Board  of  Tax  Commissioners,  Report,  1903,  p.  7;  ibid.,  1907,  p.  7. 

*  Ibid.,  1901,  p.  6.  '  Ibid.,  1903,  p.  5. 

*  Proceedings  of  Annual  Convention  of  County  Assessors,  1914,  pp.  39,  40.  Re- 
marks of  Commissioner  Link. 


154  THE  STATE  TAX  COMMISSION 

The  first  test  is  a  comparison  of  the  13th  Census  valuation  of 
farm  lands  and  the  improvements  thereon,  with  the  assessed 
valuation  of  lands  and  improvements.  It  is  conceded,  nay 
emphasized,  that  such  a  comparison  is  valid  only  in  a  general  way 
inasmuch  as  there  are  possible  discrepancies  in  the  quantities  of 
property  included  in  the  two  enumerations ;  in  the  definition  of 
the  term  "  improvements  ";  and  also  on  account  of  the  different 
frame  of  mind  induced  in  the  owners  of  property  by  the  census 
enumerator  and  the  tax  assessor.  However,  with  all  due  allow- 
ance, it  is  believed  that  the  ratio  of  assessed  to  census  valuation 
of  substantially  the  same  property,  within  a  reasonably  close 
period,  will  be  of  value  as  a  test  of  the  equality  of  assessments. 
The  table  below  is  based  upon  a  comparison  of  the  assessed 
valuation  of  each  county  for  each  of  the  years  1909,  19 10,  and 
191 1  with  the  census  valuation  of  1910.  The  local  figures  for 
1909  and  19 10  were  based  on  the  reassessment  of  real  estate  in 
1907  modified  annually  by  the  variations  in  the  assessment  of 
improvements.  A  new  quadrennial  appraisal  of  real  property  was 
made  in  191 1. 

Number  of  Counties  Assessed  at  Given  Percentages  of  Census  Value  ^ 

Number  of  Counties  in 
Percentage  groups  1909  igio  1911 

26  to  29.9 I  2 

30  "  34-9 13  "  6 

35  "  39-9 22  20  IS 

40  "  44-9 25  27  30 

45  "  49-9 21  21  26 

50  "  54-9 6  7  8 

55  "  59-9 3  I  S 

60  and  over o  i  3 

The  ratio  of  the  total  assessment  of  lands  and  improvements  for 
the  entire  state  to  the  total  census  valuation  of  farm  lands  was 
41.8  per  cent.  In  each  of  the  first  two  years  there  were  forty- 
seven  counties,  or  one  more  than  half  of  the  total  number, 

'  Based  on  figures  from  the  report  for  1909-10,  and  additional  figures  furnished 
by  the  board.  Lake  county  was  omitted  in  all  three  years  because  of  improper  re- 
turns from  the  county  auditor;  Orange  county  was  omitted  in  1909  and  19 10  for 
the  same  reason. 


TAX  COMMISSIONERS  OF  INDIANA  1 55 

assessed  within  5  per  cent  of  this  average  ratio.  This  number  had 
dropped  to  forty-five  in  191 1,  but  the  reappraisement  of  that 
year  had  caused  a  general  upward  shift  of  the  ratios  representing 
a  comparison  with  the  census  figures  of  19 10.  While  about  one- 
half  of  the  counties  are  seen  to  have  been  fairly  evenly  assessed 
and  equalized,  the  other  half  display  a  widening  range  of  varia- 
tions from  the  state  average.  For  the  greater  number  of  these, 
the  variation  was  not  in  excess  of  10  per  cent  in  either  direction, 
and  the  number  of  counties  that  were  at  great  variance  was  small. 
Viewed  in  this  way,  there  appears  to  have  been  a  fairly  close 
approximation  to  equality  in  the  assessment  and  equalization  of 
farm  lands  and  improvements.  But  it  must  be  remembered  that 
individual  counties  were  ranging  from  less  than  30  per  cent  to 
more  than  60  per  cent  of  the  census  valuation;  and  that  in  1910, 
for  instance,  there  were  thirty-two  counties  which  varied  from 
each  other  by  as  much  as  10  per  cent  to  20  per  cent.  So  far  as  a 
judgment  is  permissible  from  the  census  figures,  the  differences 
do  not  appear  to  have  been  excessive,  if  only  the  relations  between 
groups  of  counties  are  considered;  but  if  account  is  taken  of 
individual  variations,  considerable  inequality  of  assessment 
prevailed  in  191 1. 

This  conclusion  is  supported  by  another  comparison  which  has 
been  made  between  the  assessed  valuation  of  all  property  in  each 
county  in  19 10  with  the  census  valuation  of  all  farm  property  in 
that  year.  The  former  should  exceed  the  latter,  on  a  full  value 
basis,  since  it  includes  all  of  the  latter  and  in  addition  all  of  the 
real  and  personal  property  in  the  municipalities.  The  results  of 
this  comparison  for  certain  counties,  grouped  on  the  basis  of  the 
13th  Census  average  value  of  farm  lands,  are  given  in  the  table 
on  the  following  page.^ 

These  figures  suggest  the  existence,  in  Indiana,  of  a  tendency  so 
often  observed  in  other  states  toward  progressive  undervaluation 
of  the  more  valuable  properties.  The  two  groups  of  counties  with 
the  lowest  values  of  farm  lands  show  the  smallest  proportions  in 
the  lowest  percentage  groups,  and  the  group  of  counties  contain- 

*  Data  from  13th  Census,  vi,  and  State  Board  of  Tax  Commissioners,  Report, 
1910. 


156 


THE  STATE  TAX  COMMISSION 


ing  the  cheapest  land  m  the  state  shows  the  largest  number  in  the 
highest  percentage  group.  The  higher  the  census  average  value 
of  farm  lands,  the  greater  the  proportion  of  counties  in  the  lower 
percentage  groups.  Of  the  five  counties  in  the  state  having  the 
most  valuable  farm  lands,  none  is  found  in  either  of  the  upper 
two  percentage  groups.  There  would  naturally  be  more  property 
of  all  sorts  in  the  richer  counties  than  in  the  poorer  ones,  but 
these  figures  seem  to  indicate  that  the  basis  of  assessment  is 
higher  in  the  latter;  and  that  in  so  far  as  the  distribution  of  the 
state  tax  is  concerned,  the  poorer  counties  are  discriminated 

NxJMBER  OF  Counties  in  Each  Percentage  Group — Percentages  showing 

Relation  of  Assessed  Valuation  of  All  Property,  19 io,  to 

Census  Valuation  of  All  Farm  Property,  1910 


Percentage  groups 

I 

12  Southern 
counties,  aver- 
age value, 
farms,  $io-2S 
per  acre 

II 

10  Northern 
counties,  aver- 
age value, 
farms,  $50-75 
per  acre 

III 

20  Middle 
counties,  aver- 
age value, 
farms,  $75-100 
per  acre 

IV 

5  Middle  coun- 
ties, average 
value,  farms, 
$roo  and  over 
per  acre 

45-  64.9 

65-  84.9 

85-104.9 

105  and  over 

2 
6 

I 
3 

2 

4 
2 

2 

6 
9 
3 
2 

4 

I 

against.  In  1911  the  state  tax  amounted  to  almost  $6,500,000, 
and  in  1913  it  was  $6,378,000.^  The  situation  has  not  been  im- 
proved since  1911.  The  complete  results  of  the  reassessment  of 
real  estate  m  1915  are  not  yet  available,  but  the  general  opinion,, 
freely  expressed  at  the  state  conferences  in  1914,  was  that  as- 
sessments were  still  quite  unequal.^  It  is  very  doubtful  if  the 
general  revaluation  of  191 5  accomplished  any  radical  change  in 
the  situation. 

The  conclusions  which  have  been  stated  above  have  been  sus- 
tained by  the  data  recently  published  by  the  Special  Commission 
on  Taxation.  The  statistical  portion  of  this  commission's  report 
consists  of  bare  tables  without  explanation  of  the  methods  em- 

1  State  Board  of  Tax  Commissioners,  1912,  p.  27;  ihid.,  1914,  P-  22. 
^  Cf.  especially,  address  of  Commissioner  Wolcott,  Proceedings  of  Second  Con- 
ference on  Taxation,  pp.  59-66. 


TAX  COMMISSIONERS  OF  INDIANA 


157 


ployed  in  collecting  and  testing  the  material  contained  in  them. 
Perhaps  the  most  significant  figures  are  those  given  below :  ^ 


Ratio  of  Assessed  to  True  Value  of 

Land  and 

Lots  by  Groups 

Value  of  property,  classi- 
fied by  amount 

Lands 
No.  sales 

Per  cent 

Lots 
No.  sales 

Per  cent 

Lands  and 

lots, 

Per  cent 

Total 

Under       $500 

$500-     1,000 

1,000-    2,500 

2,500-    5,000 

5,000-  10,000 

10,000-  25,000 

25,000-  50,000 

50,000-100,000 

Over     100,000 

3,102 
412 
403 
815 
672 
472 
287 
34 
7 

35-16 
52.36 
46.90 
42.40 
36.40 
35-94 
32.43 
29.44 
29.04 

5,672 
1,422 
1,178 
1,883 

833 
262 

74 

13 

5 

2 

41.00 
46.04 
46.28 

43." 
40.14 

39-27 
40.39 
37.56 
24.00 
44.50 

37-79 
47-49 
46.44 
42.89 

38.44 
37.08 

33.99 
31.83 
26.81 
44.50 

These  figures  give  the  ratios  of  assessed  to  true  value  of  the  land 
and  lots  in  thirty-six  counties  in  which  sales  data  were  collected 
for  the  special  commission  on  taxation.  Because  of  the  uncer- 
tainty as  to  the  methods  employed  in  collecting  and  interpreting 
the  sales  data  and  also  because  of  the  small  number  of  transac- 
tions in  some  of  the  property  groups,  these  figures  are  offered 
simply  as  additional  testimony  of  the  condition  of  assessments  in 
Indiana  at  the  present  time.  Assuming  their  reliability,  they 
confirm  the  conclusion  that  has  been  quite  generally  reached  as 
to  the  progressive  undervaluation  of  the  more  valuable  proper- 
ties. Other  figures  published  in  the  report  of  the  special  com- 
mission indicate  a  wide  range  of  variation  in  the  average  county 
ratios,  that  is,  a  considerable  inequality  in  the  local  assess- 
ments. Though  disagreeing  in  some  of  their  conclusions  and 
recommendations,  all  members  of  the  special  commission  were 
fully  convinced  that  property  was  Usted  at  present  in  Indiana 
at  greatly  different  percentages  of  full  value  in  the  different  tax 
districts.  2 

^  Report  of  the  Special  Commission  on  Taxation,  1916,  p.  247. 

^  Reports  of  Majority  and  Minority  of  the  Special  Commission  on  Taxation,  1916, 
pp.  V,  vi,  XV,  xxix.  This  report  is  reviewed  in  National  Tax  Bulletin,  II,  pp. 
125-132. 


158  THE  STATE  TAX  COMMISSION 

A  very  considerable  inequality  exists,  also,  among  the  various 
classes  of  personal  property  and  between  personalty  and  realty. 
In  191 2  the  board  inaugurated  the  policy  of  offering  a  reduction 
of  25  per  cent  from  personal  property  assessments  in  equalization, 
with  a  view  to  securing  fuller  assessment  of  personalty.^  This 
appeal  to  the  great  American  instinct  for  a  good  bargain  was 
measurably  successful  in  increasing  the  aggregate  equalized 
valuation  of  personal  property.  It  could  not  have  greatly  pro- 
moted equality  of  assessments  for  it  left  the  assessing  oflScials 
strictly  on  the  defensive  with  a  decided  advantage  still  on  the 
side  of  the  taxpayer. 

The  special  commission  on  taxation  published  but  little 
material  relative  to  personal  property  assessments.^  The  report 
of  the  Real  Estate  Dealers'  Association,  covering  a  canvass  of 
such  dealers  over  the  state,  disclosed  very  diverse  estimates  of  the 
percentage  of  full  value  attained  in  assessing  various  classes  of 
property.  All  were  agreed,  however,  that  only  a  very  small  pro- 
portion of  the  taxable  intangible  property  reached  the  duplicate.^ 
Tangibles  were  estimated  to  be  assessed  all  the  way  from  10  per 
cent  to  100  per  cent,  with  a  general  average  of  all  estimates  of 
55.97  per  cent  for  the  state.  One  of  the  best  assessed  groups  of 
tangible  personalty  in  every  state  is  live  stock.  Data  compiled 
by  the  special  commission  revealed  a  very  serious  condition  of 
omission  of  live  stock  and  of  undervaluation  of  that  portion  of 
such  property  actually  listed  for  taxation.  The  results  of  this 
comparison  for  19 16  are  given  below.^  Similar  data  were  compiled 
for  the  two  preceding  years,  and  they  indicate  a  steady  decline  at 

1  Proceedings  of  the  Conference  of  County  Assessors,  191 2,  pp.  29,  30. 

2  Report  of  the  Special  Commission  on  Taxation,  1916,  pp.  396-406. 
'  Ibid.,  pp.  231-236. 

*  The  following  figures  present  a  comparison  of  equalized  values  with  the  fed- 
eral returns  of  true  numbers  and  values  of  certain  classes  of  farm  animals,  for  the 
year  19 16: 

Percentage  of  assessed  Percentage  of  number 

value  to  federal  returns  assessed  to  federal 

Class  of  animals                           of  true  value  returns 

Horses  and  mules 41.3S  59-35 

Cattle 43.62  60.64 

Hogs 28.30    ■  37.99 

Sheep  and  goats 21.22  27.16 

Report  of  the  Special  Commission  on  Taxation,  pp.  404,  406. 


TAX  COMMISSIONERS  OF  INDIANA  1 59 

practically  every  point.  The  assessment  of  live  stock  has  been 
clearly  degenerating  in  recent  years. 

We  turn  now  to  an  examination  of  the  reasons  for  this  rather 
complete  failure  of  the  state  equalization  in  Indiana.  The  first 
reason  is  the  absence  of  sufficient  data.  The  law  should  allow 
more  time  for  equalization  and  should  make  more  ample  provi- 
sion for  the  compilation  of  data  of  values.  The  board  has  never 
had  adequate  office  equipment,  clerical  or  otherwise,  for  the  col- 
lection of  information  relative  to  values  and  assessments.  A 
personal  observation  of  the  materials  and  methods  used  in  the 
equalization  of  19 10  confirms  the  conclusion  of  its  perfunctory 
character.  Absolutely  no  data  had  been  collected  concerning 
relative  land  values.  The  only  figures  relative  to  the  assessment 
of  personal  property  were  the  average  values  of  certain  classes. 
The  state  board  merely  "  checks  up  on  the  assessments  by  con- 
sideration of  the  average  valuations  as  reported  from  the  coun- 
ties."^ Average  values  of  farm  animals  may  serve  some  purpose, 
and  the  board  was  able  to  show,  in  this  case,  that  greater  equality 
was  obtained  in  1914  than  in  1913."  But  average  values  alone 
can  be  of  almost  no  service  in  equalizing  many  classes  of  per- 
sonal property,  including  all  forms  of  intangible  property.  The 
impression  gained  by  the  present  writer  from  a  personal  inspec- 
tion of  the  materials  was  that  the  whole  process  of  equalization 
among  counties  in  191 1  had  been  one  of  the  roughest  guess- 
work, of  which  only  the  crudest  and  most  fragmentary  records 
remained.^ 

A  second  reason,  operative  only  in  recent  years,  has  been  the 
restriction  of  the  board's  authority  by  the  courts.  The  law  pro- 
vides that  counties  shall  be  equalized  by  adding  to  or  deducting 
from  the  aggregate  valuation  of  the  lands,  town  and  city  lots, 
and  personal  property  such  percentages  as  shall  reduce  the  same 
to  its  proper  value.*  For  twenty  years  the  board  understood  that 
it  had  power  to  equalize  each  of  these  classes  separately,  but  in 

'  Personal  Letter  from  Commissioner  D.  M.  Link,  May  2,  1912. 
2  State  Board  of  Tax  Commissioners,  Report,  1914,  p.  10. 
'  A  personal  visit  was  made  to  Indianapolis  in  February,  191 1,  and  subsequent 
visits  have  been  made  at  different  times. 
*  Tax  Laws  of  Indiana,  1912,  §  191. 


l6o  THE  STATE  TAX  COMMISSION 

191 1  the  courts  held  such  a  method  invalid.^  During  the  years  in 
which  the  board's  construction  prevailed,  so  little  use  was  made 
of  the  pri\'ilege  of  equalizing  by  classes  that  no  objection  was 
raised.  The  courts  interdicted  this  method  only  as  it  began  to  be 
more  energetically  appUed.  In  191 2  the  board  pointed  out  the 
obvious  injustice  which  would  result  from  any  vigorous  equaliza- 
tion under  this  restriction  {i.  e.,  the  increase  or  decrease  of  the 
county  as  a  whole)  and  defended  its  failure  to  take  action  on 
personal  property  in  the  resolution  given  below.^ 

While  this  course  was  probably  the  wisest  possible  under  the 
circumstances,  its  evident  weakness  emphasizes  the  importance 
of  adequate  authority  for  the  control  of  assessments.  Moreover, 
the  resolution  suggests  a  third  reason  for  the  failure  to  develop 
more  effective  methods.  This  is  the  feeling  —  which  has  appar- 
ently prevailed  during  the  greater  part  of  the  board's  existence  — 
that  the  work  of  the  local  assessors,  under  such  supervision  as  has 
been  given,  has  required  Httle  scrutiny  and  less  change,  in  order 
to  attain  justice.  Such  an  attitude  has  rendered  the  board  indif- 
ferent, if  not  blind,  to  the  weaknesses  of  the  law  and  the  need  for 
better  methods  of  procedure.^  This  point  of  view  was  in  part  the 

1  Bell  V.  Meeker,  39  Ind.  App.  224.  Gray  v.  Foster,  46  hid.  App.  149.  Also, 
Proceedings  of  the  Conference  of  County  Assessors,  191 1,  p.  40. 

2  The  following  resolution  was  adopted  in  191 2:  "Be  it  Resolved,  That  while 
there  are  apparent  discrepancies  in  the  assessment  of  certain  classes  of  personal 
property  in  the  various  counties  of  the  state,  we  are  of  the  opinion  that  such  dis- 
crepancies do  not  work  such  an  injustice  between  the  counties  as  requires  the  action 
of  this  Board. 

"  Our  action  upon  the  subject  of  equalizing  the  assessments  of  the  counties  is, 
by  statute,  confined  to  the  raising  or  lowering  of  the  assessment  of  all  the  personal 
property  of  one  or  more  of  the  counties.  Nine-tenths  of  the  taxes  raised  in  each 
county  is  consumed  in  the  county,  and  the  important  thing  in  the  matter  of  equali- 
zation is  to  have  equal  assessments  within  the  county.  If  we  should  raise  or  lower 
the  assessment  in  any  county  we  would  probably  do  more  in  justice  between  the 
taxpayers  of  that  county  than  we  would  gain  in  the  attempt  to  equalize  between 
the  counties.    Be  it  further 

"  Resolved,  That  as  each  county  has  represented  that  the  people  of  the  county 
are  satisfied  with  the  local  assessment  made  this  year,  we  deem  it  to  be  our  duty  to 
let  the  local  assessment  of  personal  property  stand  as  made  by  the  local  authori- 
ties." State  Board  of  Tax  Commissioners,  Proceedings,  1912,  pp.  370,  371.  In  1913, 
25  counties  were  raised,  but,  in  19 14  only  one  increase  was  made.  State  Board  of 
Tax  Commissioners,  Report,  1914,  pp.  10,  11. 

^  The  report  for  191 2  contained  the  first  recommendations  of  any  importance 
for  changes  in  the  tax  law  that  have  ever  been  made.    Cf.  Report,  191 2,  pp.  10-16. 


TAX  COMMISSIONERS  OF  INDIANA  l6l 

product  of  the  comparatively  successful  results  of  the  first  years 
of  centralized  administration.  The  new  administrative  machinery, 
with  all  of  its  imperfections,  was  so  vastly  superior  to  the  former 
decentralized  organization  that  material  gains  were  made  in  the 
assessment  of  property.^  In  its  earlier  years  the  board  emphasized 
the  escape  of  personal  property  and  the  unequal  basis  of  assess- 
ment; and  in  1894  it  called  the  first  convention  of  county  asses- 
sors to  promote  better  assessments. ^  But  by  the  end  of  the  first 
decade  the  tone  of  its  discussions  had  distinctly  shifted  and  in 
1901  it  asserted  that  ''  all  tangible  property  is  assessed,  and  has 
been  for  years,  at  its  cash  value."  ^  At  the  conference  of  the 
county  assessors  in  1914  a  member  of  the  board  declared  that 
the  assessors  were  getting  a  greater  per  cent  of  intangible  prop- 
erty upon  the  tax  duplicate  in  Indiana  than  in  any  other  state.* 
And  in  19 14  the  aggregate  assessment  of  personalty  fell  below 
that  of  19 13  by  almost  $5,000,000.^  During  the  years  in  which 
the  Indiana  system  was  unique  the  officials  fell  into  a  boastful 
way  of  characterizing  the  Indiana  tax  law  as  the  best  in  the 
Union.  In  so  far  as  reference  was  had  to  the  new  system  of  super- 
vision, there  was  some  foundation  for  this  elation.  The  ancient 
habit  persists  and  crops  out  in  family  gatherings  like  the  asses- 
sors' conventions  but  it  denotes  today  simply  inexcusable  igno- 
rance of  conditions  both  at  home  and  abroad.  Happily,  there 
are  some  signs  that  this  point  of  view  is  passing.  In  191 2  doubt 
was  expressed  as  to  the  possibility  of  successful  administration 
of  the  general  property  tax.  This  is  the  first  intimation  to  be 
found  in  the  published  reports  that  the  general  property  tax  is 

^  See  figures  below,  p.  181. 

*  State  Board  of  Tax  Commissioners,  Report,  1895,  pp.  5,  7. 

^  Ibid.,  1901,  p.  9.  Sentiments  like  these  were  not  confined  to  members  of  the 
Board.    The  attorney-general,  in  addressing  the  county  assessors  in  1900,  said: 

"  I  believe  there  is  less  tax-dodging  in  Indiana  than  in  any  state  in  the  Union. 
People  in  Indiana  are  generally  assessed  for  as  much  as  they  ought  to  be,  and  after 
the  money  is  collected,  I  beUeve  it  will  be  more  economically  managed  than  are  the 
finances  of  any  other  state,  without  any  exception." 

Proceedings  of  the  Conference  of  County  Assessors,  1900,  p.  36.  Cf.  ibid.,  1914, 
for  expressions  of  similar  views  by  various  speakers. 

*  Remarks  of  Commissioner  D.  M.  Link,  ibid.,  1914,  p.  40.  Cf.  his  remarks 
along  the  same  hne  at  National  Tax  Conference,  191 2,  Proceedings,  p.  104. 

*  State  Board  of  Tax  Commissioners,  Report,  19 14,  p.  12. 


1 62  THE  STATE  TAX  COMMISSION 

not  the  last  word  in  tax  systems.  Two  state  tax  conferences 
were  held  in  19 14,  in  which  the  tax  commissioners  took  active 
part.  There  was  general  agreement  as  to  the  failure  of  the  tax 
system,  but  opinion  has  not  yet  crystallized  on  the  proper  lines 
of  reform. 

The  Commission  on  Taxation,  which  reported  in  19 16,  was 
unfortunately  unable  to  present  a  unanimous  recommendation 
on  the  reforms  to  be  proposed.  The  majority  report  was  reac- 
tionary and  inclined  to  the  view  that  the  general  property  tax  was 
as  good  as  any  other  tax  system;  and  that  the  only  difficulty 
lay  in  the  defective  administration  under  the  board  of  tax  com- 
missioners. They  proposed  a  reorganization  of  this  body  with 
provision  for  more  extensive  powers  of  control  over  the  adminis- 
tration of  the  tax  system.  The  minority  reports,  and  especially 
the  one  by  Dr.  W.  A.  Rawles,  held  out  for  a  constitutional 
amendment  and  a  thoroughgoing  revision  of  the  tax  system  as 
well  as  for  the  administrative  reforms.^  This  regrettable  division 
of  the  commission  will  probably  delay  any  significant  action 
upon  the  subject. 

A  fourth  important  reason  for  the  failure  to  develop  a  more 
effective  system  of  dealing  with  the  inequalities  of  local  taxation, 
and  possibly  for  the  failure  to  perceive  and  attack  the  weaknesses 
of  the  existing  tax  system,  is  to  be  found  in  the  unprogressive 
personnel  of  the  board  during  the  greater  part  of  its  history.  The 
spoils  system  does  not  conduce  to  official  efficiency  and  appoint- 
ments to  the  board  have  too  often  been  made  on  account  of 
political  considerations.  Such  members  have  too  often  acted 
with  a  view  to  political  rather  than  equitable  results.  Mr.  Dunn 
declared  that  the  first  board  reduced  his  railroad  valuations  30 
per  cent  on  the  ground  that  acceptance  of  the  full  figures  meant 
poHtical  suicide.^  The  statement  of  Governor  Hanly  as  he 
announced  the  reappointment  of  one  member  indicated  the  char- 
acter of  the  considerations  upon  which  such  appointments  were 
too  often  made :  ^ 

1  Report  of  the  Commission  on  Taxation,  1916,  pp.  v-xxxvii. 
*  J.  P.  Dunn,  Remarks  at  the  First  State  Conference  on  Taxation,  Proceedings, 
1914,  pp.  32-44- 

'  Proceedings  of  the  Conference  of  County  Assessors,  1906,  p.  5. 


TAX  COMMISSIONERS  OF  INDIANA  1 63 

When  I  assumed  the  duties  of  my  present  position,  I  expected  to  appoint 
someone  to  succeed  Mr.  Martin.  He  was  serving  at  the  time  under  a  second 
appointment.  There  were  then  and  there  are  now  many  good  and  capable 
democrats  in  Indiana  out  of  public  office.  All  of  them  were  and  are  willing 
to  serve  the  state  in  any  position  of  trust  or  profit,  but  the  only  opportunity 
they  have  had  in  recent  years  lies  in  the  appointing  power  under  statutes 
requiring  minority  membership  on  certain  boards  and  commissions. 

The  governor  added  that  the  friends  of  Mr.  Martm  had  been  so 
earnest,  zealous  and  persistent  that  he  had  consented  to  his 
reappointment.  The  only  sa\dng  feature  of  the  situation,  if  such 
there  were  at  all,  was  in  the  possibility  that  two  terms  had  given 
the  incumbent  some  fitness  for  the  position  over  an  untried  candi- 
date, even  though  the  ranks  of  the  good  democrats  out  of  office 
were  full.  Such  fitness  as  was  possessed,  or  had  been  acquired 
during  the  two  terms,  was  saved  for  the  service  of  the  state, 
however,  not  on  account  of  any  appreciation  of  its  value  which 
the  governor  might  have  felt;  on  the  contrary,  the  sheer  pressure 
of  political  friends  forced  a  change  in  the  governor's  plans.^ 

Administration  of  Corporation  Taxes 

The  history  of  corporate  taxation,  in  Indiana,  from  the  admin- 
istrative standpoint,  may  be  divided  into  two  periods,  with  the 
year  1872  as  the  division  point.  The  earlier  period  was  marked 
by  a  great  variety  of  experiments  in  all  of  which  local  adminis- 
tration was  an  essential  feature.  In  1859  the  assessors  of  the 
counties  through  which  each  line  of  railroad  passed  were  con- 
stituted a  board  of  railroad  appraisers  for  that  road.^  The  state 
board  of  equalization  decided  in  this  year  that  its  authority  did 
not  extend  to  railroad  assessments,  which  were  in  consequence 

^  Cf.  Majority  Report  of  the  Commission  on  Taxation,  of  which  Mr.  Dunn  was  a 
member,  and  especially  the  following  language: 

"  The  fault  in  Indiana  has  been  primarily  with  the  Governors  of  the  State. 
The  law  of  1891  required  that  two  (later  three)  members  of  the  State  Board  should 
be  'experts  in  taxation.'  There  has  never  been  a  tax  expert  appointed  to  the  Board 
since  it  was  created.  The  law  makes  it  the  especial  duty  of  this  Board  to  see  that 
the  law  is  enforced  but  the  law  has  not  been  enforced.  The  common  excuse  made 
by  members  of  the  Board  for  failure  to  assess  property  at  true  value,  as  required 
by  law,  is  that  it  is  their  duty  to  '  equalize,'  and  that  their  attention  has  been  given 
to  that."     Report,  p.  v. 

^  Laws  of  Indiana,  1859,  ch.  i,  §  6. 


164  THE  STATE  TAX  COMMISSION 

left  without  equalization  of  any  sort.  Six  years  later  the  board 
was  authorized  to  hear  appeals  from  the  railroads  and  grant  them 
relief;  but  the  state  could  not  appeal  to  the  board,  nor  could  the 
latter  increase  the  assessment  of  any  road.^ 

The  principal  changes  made  by  the  revision  of  the  tax  law  in 
1872  were  the  reorganization  of  the  board  of  equalization  and  the 
introduction  of  central  assessment  of  corporations.  Previous  to 
1872  the  board  of  equalization  had  been  composed  of  one  member 
from  each  congressional  district;  it  was  now  to  consist  of  the 
governor,  lieutenant  governor,  secretary,  auditor,  and  treasurer 
of  state.  Railroad  and  telegraph  companies  were  to  be  assessed 
by  the  new  board,  which  was  also  to  determine  the  corporate 
excess  of  private  companies.  The  framework  of  this  plan  of  rail- 
road taxation  has  endured  to  the  present.  Railroad  property  was 
to  be  returned  in  four  main  classes:  "  Railroad  track  ";  "  other 
real  estate  ";  "  rolling  stock  ";  and  "  other  personal  property." 
The  state  board  assessed  all  of  the  tangible  property  except  the 
second  class,  which  remained  in  the  jurisdiction  of  the  local 
assessors.  Intangible  elements  of  value  were  to  be  valued  by 
deducting  from  the  fair  cash  value  of  the  capital  stock  the 
assessed  valuation  of  tangible  property.^  The  valuations  of  prop- 
erty and  capital  stock  were  to  be  apportioned  to  the  tax  districts 
on  the  mileage  basis. 

Telegraph  companies  were  required  to  furnish  a  statement  of 
their  capital  stock  and  of  their  mileage  in  the  state.  The  ofl&ce 
furniture  and  other  personal  property  of  these  companies  were  to 
be  listed  and  assessed  where  located,  by  the  local  assessors.  The 
capital  stock  was  to  be  valued  by  the  state  board  of  equalization 
and  apportioned  to  the  tax  districts  on  the  basis  of  the  miles  of 
line  in  each  district. 

All  domestic  corporations  of  every  sort  were  to  deliver  annually 
to  the  county  assessors  a  statement  covering  stock  and  bond 
issues  and  assessed  valuation  of  tangible  property.  The  state 
board  was  to  value  the  capital  stock  and  deduct  the  assessment 
of  tangible  property.  Because  of  the  difficulty  of  obtaining  returns 

1  Laws  of  Indiana,  1865-66,  Special  Session,  ch.  27,  §  5. 

2  Laws  of  htdiana,  1872,  ch.  37. 


TAX  COMMISSIONERS  OF  INDIANA  1 65 

from  small  local  companies  the  assessment  of  the  capital  stock  of 
private  corporations  was  transferred  to  the  county  boards  of 
equahzation  in  1877.^ 

The  development  of  the  system  of  corporation  taxes  was 
pushed  further  in  1873  by  the  imposition  of  taxes  upon  the  gross 
receipts  of  foreign  insurance  companies  and  on  the  gross  receipts 
of  both  foreign  and  domestic  express  and  sleeping  car  companies.^ 
Foreign  telegraph  and  telephone  companies  were  subjected  to  a 
similar  tax  in  1881.^  These  taxes  were  held  invalid  ^  and  in  1889 
the  ground  of  attack  was  shifted  by  imposing  excise  taxes  on  the 
privilege  of  doing  business  within  the  state.  ^  Following  the  reor- 
ganization of  the  tax  system  in  1891  the  gross  receipts  taxes  were 
gradually  abandoned  for  the  ad  valorem  method,  administered 
by  the  state  board  of  tax  commissioners.  Railroad  companies 
were  taxed  by  this  board  from  the  beginning;  express,  sleeping 
car,  telegraph  and  telephone  companies  were  added  in  1893 ;  * 
and  pipe  line  companies  in  1901.''  In  this  year  also  the  term 
"  railroad  "  was  extended  to  include  street  and  interurban  lines.* 
The  only  corporations  subject  to  the  gross  earnings  tax  at  the 
present  time  are  foreign  insurance  companies  and  domestic 
navigation  companies. 

Railroad  Taxation  since  1891 

The  change  in  the  administration  of  railroad  taxes  in  1891 
wrought  little  modification  of  the  system  itself,  which  remained, 
with  one  exception,  substantially  as  adopted  in  1872.  The  pro- 
visions for  the  taxation  of  corporate  excess  were  omitted,  by 

^  Laws  of  Ifidiana,  1877,  ch.  89. 

2  Ibid.,  1873,  ch.  93. 

'  Revised  Stalutes  of  Indiana,  1881,  §§  6353,  6354. 

*  Wolfv.  Pullman  Palace  Car  Co.,  16  Fed.  Rep.  193;  Slate  v.  Woodruff  Sleeping 
and  Parlor  Coach  Co.,  114  Ind.  Rep.  155. 

*  Laws  of  Itidiana,  1889,  chs.  133,  215,  220. 

*  Ibid.,  1893,  ch.  171. 

'  Ibid.,  1901,  ch.  81.  This  transfer  eliminated  the  taxation  of  franchises  or  cor- 
porate excess  of  these  companies.  The  cities  are  interested  in  the  abolition  of 
state  assessment  in  order  to  tax  these  elements  once  more.  Cf.  Proceedings  of  the 
Second  State  Tax  Conference,  1914,  pp.  170-172. 

*  Laws  of  Indiana,  1901,  ch.  56. 


1 66  THE  STATE  TAX  COMMISSION 

which  it  might  be  inferred  that  intangible  elements  were  no 
longer  to  be  included  in  the  railroad  valuation.  The  statutory 
machinery  for  the  collection  of  the  data  of  values  was  left  in  the 
crude  and  indirect  form  established  in  1872.  All  of  the  corpora- 
tions centrally  assessed  make  their  returns  to  the  state  auditor, 
who  presents  them  to  the  board  for  the  actual  assessment.  The 
latter  is  not  restricted  to  the  material  obtained  through  the 
auditor,  but  the  very  fact  that  it  is  not  directly  concerned  with 
the  collection  of  the  data  upon  which  the  assessment  is  made 
tends  to  discourage  resort  to  wider  sources  of  information. 
Furthermore,  the  nature  of  the  data  used  relative  to  the  value  of 
railroad  property  emphasizes  a  piecemeal  rather  than  a  unit 
valuation.  The  four  main  classes  were  retained  from  the  law  of 
1872,  and  detailed  reports  were  required  on  each  of  these  classes; 
but  with  no  consideration  given  to  the  intangible  elements  of 
value  it  is  doubtful  if  the  physical  properties  are  properly  valued 
as  a  profit-producing  whole.  The  following  specific  facts  are  to  be 
reported  to  the  state  auditor :  ^ 

1.  The  number  of  ties  per  mile,  the  weight  of  rail  per  yard  used  in  main 
and  side  tracks,  what  joints  and  chairs  are  used  in  tracks,  the  ballast- 
ing of  road,  whether  gravelled,  stone  or  dirt,  the  number  and  quality  of 
buildings  and  other  structures  on  "  railroad  track,"  the  length  of  time 
iron  or  steel  in  track  has  been  used,  and  the  length  of  time  the  road  has 
been  built. 

2.  A  statement  showing: 

{a)  the  authorized  capital  stock  and  the  number  of  shares. 

{b)  the  amount  of  paid-up  capital  stock. 

(c)   the  market  value,  or  if  no  market  value,  then  the  actual  value  of 

the  shares  of  stock. 
{d)  the  total  indebtedness  except  for  current  expenses  of  operation. 
{e)   the  total  assessed  valuation  of  all  tangible  property  in  the  state. 

The  personal  property  other  than  rolling  stock  is  to  be  locally 
assessed  in  the  district  of  location  on  March  i .  It  will  be  noticed 
that  the  reports  to  be  made  do  not  include  any  information  re- 
garding income,  expenses,  net  earnings,  amounts  distributed  as 
dividends  or  reinvested  in  the  business,  or  carried  as  reserves. 
The  auditor  is  empowered  to  call  for  any  additional  information 
that  the  board  may  desire,  and  the  schedules  sent  out  do  provide 

'  Tax  Laws  of  Indiana,  ed.  of  191 2,  pp.  105,  io6. 


tax' COMMISSIONERS  OF  INDIANA  1 67 

for  a  very  brief  summary  of  the  gross  and  net  earnings  and  operat- 
ing expenses.  The  chief  emphasis  in  the  schedules  is  laid,  how- 
ever, on  the  detailed  facts  concerning  the  tangible  property. 

The  earlier  reports  of  the  state  board  contain  but  little  in- 
formation concerning  the  methods  followed  in  the  valuation  of 
railroads.     In  1891  this  general  statement  was  made:  ^ 

In  arriving  at  the  basis  for  the  estimate  of  said  values,  the  Board  has  con- 
sidered the  cost  of  construction  and  equipment  of  said  roads,  the  market 
value  of  the  stocks  and  bonds,  and  the  gross  and  net  earnings  of  said  roads, 
and  all  other  matters  appertaining  thereto  which  would  assist  the  Board  in 
arriving  at  a  true  cash  value  of  the  same. 

There  is  nothing  extant,  however,  to  indicate  the  relative  impor- 
tance assigned  to  any  of  these  factors,  or  to  the  generous  blanket 
provision  of  "  all  other  matters  pertaining  thereto."  In  one  of  the 
numerous  cases  in  which  the  validity  of  the  act  was  attacked,  the 
board  repeated  the  above  account  of  its  methods;  ^  but  the  court 
held  that  it  "  could  riot  consider  or  review  the  question  as  to  what 
evidence  the  board  had  acted  upon  in  arriving  at  the  valuation 
assessed."  The  board  testified  that  no  element  of  franchise  value 
had  been  included  in  the  valuation.  Indeed,  any  attempt  to 
assess  the  franchise  as  such  would  quite  probably  have  been 
illegal  under  the  new  law.  This  has  left  the  board  in  a  rather 
unfortunate  situation.  It  may  not  include  franchise  value  or 
corporate  excess;  it  is  therefore  prevented  from  capitalizing  the 
net  earnings  from  business  properly  accredi table  to  Indiana.  It 
has  no  means  of  knowing  accurately  the  cost  of  the  physical  prop- 
erty in  its  present  condition,  since  it  has  never  made  a  physical 
survey  of  railroad  property.  Yet  it  must  value  the  latter  apart 
from  any  consideration  of  its  earning  power  when  used  as  a  rail- 
road. One  member  of  the  board  has  recently  stated  to  the  writer 
that  most  prominence  is  given  to  the  gross  earnings,  with  such 
concessions  as  the  various  railroad  representatives  may  be  able  to 
obtain  by  personal  appeals  to  the  board. ^  An  arbitrary  rating  of 
a  certain  valuation  per  mile  was  given  to  the  railroads  some  years 

'  State  Board  of  Tax  Commissioners,  Report,  1891,  p.  218. 

2  Railway  Company  v.  Backus,  133  Ind.  625;  154  U.  S.  412,  429. 

'  Interview  with  Commissioner  D.  M.  Link,  September,  191 2. 


1 68  THE  STATE  TAX  COMMISSION 

ago  and  this  estimate  has  been  periodically  revised  according  to 
the  showing  that  the  roads  have  been  able  to  make. 

The  results  of  railroad  assessment  may  be  briefly  noticed. 
Below  are  given  the  figures  for  certain  years  under  the  former 
state  board  of  equalization,  together  with  comparative  figures 
showing  the  growth  of  assessments  since  1891 : 

Assessment  of  Railroad  Property  in  Indiana  ^  (millions) 

By  State  Board  of 

Equalization  By  State  Board  of  Tax  Commissioners 

Year            Steam  R.R.                                Year            Steam  R.R.  Street  R.R. 

1880 $38.4                            1904 $165.8  $13.4 

1885 55.0                            1906 183.7  20.6 

1890 66.2                          1908 197-9  21.7 

1910 196.9  22.4 

By  State  Board  of  Tax  jqjj 204. <;  24.7 

Commissioners                                          ^  ^  •*  ' 

1891 i6i.o  1914 208.9  27.2 

1893 159-4 

1896 154.8 

1899 153-9 

The  most  interesting  revelation  in  these  figures  is  the  great 
advance  that  was  made  in  1891  by  the  new  board  of  tax  commis- 
sioners. There  had  always  been  difiiculty  in  securing  a  proper 
railroad  assessment  and  popular  dissatisfaction  was  strong, 
though  it  is  impossible  to  say  whether  the  railroads  or  the  mass 
of  citizens  were  really  being  favored.  The  increase  of  almost 
$100,000,000  did  not  bring  the  railroad  assessment  to  full  value, 
according  to  Mr.  J.  P.  Dunn,  who  assisted  in  making  the  first 
valuation. 2  The  board  of  tax  commissioners  reduced  Mr.  Dunn's 
figures  30  per  cent,  with  an  additional  decrease  for  Marion  county, 
on  the  ground  that  other  property  was  assessed  at  only  70  per 
cent  of  full  value.  The  new  law  had  given  ample  authority  to 
raise  other  property  to  full  value  in  the  process  of  equalization, 
but  according  to  Mr.  Dunn  this  alternative  was  rejected  as 
"  political  suicide."  At  the  very  outset,  therefore,  the  board 
established  the  precedent  of  violating  the  new  legal  standard  of 
assessment. 

1  Compiled  from  the  biennial  reports  of  the  board. 

2  Cf.  Address  of  J.  P.  Dunn  at  First  State  Tax  Conference,  Feb.,  1914,  Pro- 
ceedings, pp.  33-40- 


TAX  COMMISSIONERS  OF  INDIANA  1 69 

The  assessments  declined  through  the  nineties  but  by  1904  they 
had  recovered  the  ground  lost,  a  very  slow  recovery  in  view  of  the 
remarkable  business  prosperity  since  1898.  In  1904  the  Census 
Bureau  valued  the  operating  property  of  Indiana  railroads  at 
$375,541,000,  and  on  this  basis  the  state  board  was  assessing  at 
44.1  per  cent  of  full  value.  Some  concession  was  natural  and 
proper  after  the  panics  of  1893  and  1907;  but  in  the  earlier  case 
the  decline  in  assessments  began  in  1892,  and  therefore  in  ad- 
vance of  the  severe  business  depression,  and  in  the  second  case 
the  reductions  were  not  begun  until  the  second  year  after  the 
panic.  The  dependence  upon  gross  earnings  as  the  chief  factor 
in  valuations  would  cause  the  assessment  to  lag  behind  the  actual 
movement  of  earnings,  and  this  appears  to  have  been  the  case 
after  1907.  In  view  of  the  close  adherence  to  this  criterion  of 
value  it  might  be  worth  while  to  abandon  the  ad  valorem  assess- 
ment for  a  regular  tax  on  gross  earnings.  The  board  does  not 
secure,  with  its  present  methods,  an  accurate  assessment  of  the 
physical  property  and  the  legislature  would  probably  be  unwill- 
ing to  provide  the  extension  of  staff  and  equipment  to  permit 
such  a  valuation. 

The  low  level  of  railroad  assessments  in  Indiana  is  emphasized 
by  a  comparison  of  the  average  values  per  mile  placed  on  certain 
roads  which  traverse  both  Indiana  and  Ohio : 

Assessed  Valuation  per  Mile  in  Indiana  and  Ohio  ^ 

By  Indiana  Board  By  Ohio  Tax  Commission 

Railroad  Company  1912  1912 

B.  and  O.  S.  W $29,327  $69,953 

C.  C.  C.  and  St.  L 42,036  60,183 

L.  S.  and  M.  S 92,439  134,693 

Pitts.  Ft.  W.  and  Chic 93,536  210,995 

P.  C.  C.  and  St.  L 43,379  "1,833 

These  averages  were  obtained  by  dividing  the  miles  of  main  line 
into  the  total  assessment  of  the  road.  Even  after  recognizing  that 
the  assessment  of  an  interstate  road  in  one  state  is  not  a  certain 
index  of  the  value  of  that  portion  of  the  road  located  in  another 

1  Based  on  figures  in  the  Reports  of  the  Indiana  and  Ohio  Tax  Commissions, 
1912. 


I/O  THE  STATE  TAX  COMMISSION 

state,  the  comparison  is  not  flattering  to  the  Indiana  board  which 
in  every  case  has  fallen  far  below  the  level  set  by  its  more  recently 
established  neighbor.  The  Ohio  valuations  have  been  accepted 
by  the  railroads  without  contest,  which  is  prima  facie  evidence 
that  they  do  not  consider  the  figures  excessive.  It  follows,  there- 
fore, that  the  Indiana  results  are  considerably  below  full  value. 

The  most  important  question  —  the  relation  of  the  railroad 
assessments  to  those  of  other  property  in  the  state  —  cannot  be 
answered.  It  is  very  much  more  important  that  there  be  equality 
of  this  sort  than  that  any  class  of  property  be  assessed  at  full 
value.  There  is  general  recognition  of  the  fact  that  all  property 
is  underassessed,  but  it  is  impossible  to  say  which  classes  have 
fallen  farthest  from  the  legal  standard.  The  fact  of  a  variation 
from  the  legal  basis  is  presumptive  evidence  of  inequality  in  the 
degrees  of  variation,  however,  since  there  is  no  uniform  percent- 
age of  assessed  to  true  value  used  by  the  local  officials  and  there- 
fore little  probability  of  equality  between  the  assessments  of 
railroad  and  other  property. 

The  Assessment  of  Other  Public  Service  Corporations^ 

The  method  of  valuing  the  property  of  the  other  public  service 
corporations  which  are  centrally  assessed  differs  radically  from 
that  used  for  the  railroads.  This  method  may  be  summarized  as 
follows :  2 

1.  Determine  the  actual  cash  value  of  the  property  by  deducting  the 
value  of  the  real  estate  not  used  in  the  business  from  the  combined 
actual  cash  value  of  capital  stock  and  bonded  indebtedness. 

2.  Apportion  to  Indiana  that  part  of  the  total  which  the  mileage  in  the 
state  bears  to  the  total  mileage  of  the  system. 

3.  From  the  Indiana  valuation  deduct  the  assessed  value  of  real  estate, 
machinery  and  other  property  locally  assessed;  apportion  the  re- 
mainder to  the  tax  districts  on  a  mileage  basis. 

This  really  amounts  to  a  state  assessment  of  the  corporate  excess 
or  franchise  value,  a  proceeding  that  is  now  forbidden  in  the  case 
of  railroads.   The  only  point  involving  the  use  of  discretion  is  the 

1  Includes  telegraph,  telephone,  palace  car,  sleeping  car,  fast  freight  companies, 
dining  car,  and  express  companies. 
*  Tax  Laws  of  Indiana,  191 2,  §  93. 


TAX  COMMISSIONERS  OF  INDIANA 


171 


valuation  of  the  securities.  The  board  is  authorized  to  consider 
the  market  value  of  the  stocks,  the  dividends  paid,  and  all  other 
circumstances  in  relation  to  the  actual  value  of  the  stocks.  The 
chief  reliance  for  this  information  is  placed,  however,  upon  the 
statements  made  by  the  companies  themselves. 

The  law  of  189 1  was  attacked  by  the  express  companies  and  the 
railroads,  but  both  state  and  federal  courts  sustained  the  measure. 
Defeated  here,  the  express  companies  sought  another  means  of 
overthrowing  the  real  purpose  of  the  act,  and  in  1899  they 
advanced  the  contention  that  in  the  apportionment  of  their  total 
valuation  among  various  states  on  the  mileage  basis  all  of  the 
ocean  and  foreign  mileage  should  be  included.  By  this  means  the 
express  companies  had  been  able  to  evade  a  considerable  amount 
of  taxes  in  Michigan  for  ten  years,  until  the  law  was  amended  in 
1909;  ^  but  such  evasion  apparently  continues  in  Indiana,  for  a 
similar  recommendation  of  that  board  in  1899  has  not  yet  been 
enacted  into  law.^ 

The  results  of  central  assessment  have  been  fairly  satisfactory; 
there  are,  however,  some  vagaries  which  are  difficult  of  explana- 
tion. These  may  be  indicated,  and  the  general  course  of  the 
valuations  shown,  in  the  table  below,  which  presents  the  figures 
since  1904:  ^ 

Assessments  of  Pxjblic  Service  Corporations  (except  Railroads) 

(millions) 


Class  of 
Corporation 

Telephone 

Pipe  line 

Telegraph 

Express 

Sleeping  car .  .  . 

Transportation 

companies.  .  . 


IQ06 


1908 


$7-3 
6.4 


38 


$7.9 
4.6 

25 

07 
73 

.48 


$8.9 
S-2 
17 
3 
56 

.58 


$10.6 
9.8 
47 
SS 
86 

.62 


$10.1 

10.4 
2.62 
.70 
.87 

.66 


$11.1 
I0.8 


1-73 
I  03 


.89 


$12.3 
10.5 
319 
1-33 
1. 19 

1. 12 


$13-4 

10.2 

331 

1.38 

1-23 

1.26 


$14-8 

10.2 

3-31 

1.22 

I -31 

I -56 


$15-8 

10.8 

3-33 

.82 


The  figures  for  telephone,  sleeping  car  and  transportation  com- 
panies show  a  slow  but  steady  increase  over  the  period  here 

*  Cf.  below,  ch.  9.  '  From  the  biennial  reports  of  the  Board. 

*  Board  of  Tax  Commissioners,  Report,  1899,  pp.  3,4. 


172 


THE  STATE  TAX  COMMISSION 


covered.  In  1908-10  there  was  a  slight  reaction  all  along  the  line, 
due  doubtless  to  the  panic  of  1907  and  resultant  depression.  The 
pipe  line  companies  were  apparently  unaffected  by  the  panic, 
which  makes  it  the  more  difficult  to  explain  the  decline  in  these 
figures  in  the  relatively  prosperous  years  1905-06.  Reference  to 
panic  conditions  fails  to  account  for  the  excessive  decline,  after 
1907,  of  the  assessments  of  telegraph  and  express  companies. 
For  the  former  no  adequate  explanation  appears;  and  the  only 
suggestion  in  the  case  of  the  latter  is  that  of  the  varying  amounts 
of  ocean  mileage  that  have  been  included  in  different  years.  The 
erratic  character  of  the  assessments  may  be  further  illustrated  by 
the  average  valuations  per  mile  placed  upon  certain  important 
individual  companies.  These  figures  since  1907  are  given  in  the 
table  below:  ^ 


Assessed  Valuation 

PER  Mile  of 

Line  Operated  in  Indiana 

Name  of  company 

1907 

1908 

1909 

1910 

1911 

1912 

1913 

1914 

Western  Union 

Adams  Express 

National  Express  .... 

$59 

387 

95 

$21 

163 

50 

$44 
50 

$50 
336 

$55 
315 
17s 

$55 
315 
175 

$55 
27s 
150 

$55 
185 
100 

The  sudden  and  extreme  variations  which  are  here  shown  are  not 
explicable  by  any  known  principles  of  corporate  valuation  unless 
the  board  was  influenced  in  an  unusual  degree  by  speculative 
considerations.  There  is  no  evidence  that  the  board  has  under- 
taken to  collect  data  to  check  up  the  corporation  returns,  which 
confirms  the  suspicion  that  the  assessments  have  been  in  large 
measure  self-made.  The  wholesale  reductions  that  have  been 
allowed  the  express  companies  in  the  last  few  years  have  been 
in  recognition  of  the  effects  of  the  parcels  post  upon  their 
earnings. 

Much  of  the  advantage  from  centralized  assessment  of  these 
corporations  has  been  lost  in  Indiana  as  in  some  other  states  by 
the  attempt  to  apportion  the  taxes  to  local  tax  districts.  The 
diffusion  of  the  tax  throughout  the  state  wherever  is  found  a  mile 

^  Compiled  from  the  Proceedings  of  the  State  Board  of  Tax  Commissioners. 


TAX  COMMISSIONERS  OF  INDIANA  1 73 

of  wire,  or  of  pipe  line,  or  of  trackage  over  which  business  is  done 
largely  neutralizes  the  taxes  paid.  A  useless  expense  of  certifica- 
tion and  collection  is  involved  in  the  payment  of  tax  bills  in 
hundreds  of  tax  districts.  In  191 2  the  Indiana  Pipe  Line  Com- 
pany and  the  Ohio  Oil  Company  each  paid  on  valuations  in  113 
tax  districts ;  in  the  latter  case  the  amounts  of  valuation  certified 
were  less  than  $500  in  59  instances,  while  in  the  former,  15  certifi- 
cations were  for  less  than  that  sum.  Such  small  driblets  of 
taxable  values  have  no  effect  on  local  tax  rates.  If  the  total  tax 
were  turned  into  the  state  treasury  the  rate  of  state  tax  might  be 
reduced  and  a  real  benefit  would  thus  accrue  to  the  local  districts. 

Supervision  of  the  Local  Officials 

The  functions  of  state  equalization  and  corporate  assessment 
had  been  exercised  by  central  boards  for  many  years  previous  to 
1 89 1  in  many  states.  The  creation  of  a  new  board  in  which  was 
vested  these  duties  was  not  therefore  a  radical  innovation;  but 
to  bestow  upon  that  administrative  body  general  supervision 
over  the  tax  system  was  to  strike  out  into  a  hitherto  untravelled 
road.  The  Indiana  legislature  was  here  making  history  instead  of 
merely  repeating  it.  The  achievements  of  some  of  the  tax  com- 
missions in  equalization  and  corporate  assessment  have  been  of 
great  value;  but  their  most  notable  and  important  work,  while 
the  general  property  tax  endures,  will  be  their  influence  upon  the 
local  assessing  ofiicials. 

While  the  theory  of  the  Indiana  law  was  epoch-making,  the 
lack  of  experience  and  precedent  prevented  the  development  of 
the  agencies  for  proper  supervisory  control  of  the  local  oflficials. 
In  reality,  the  board  was  given  only  the  power  of  advisory  super- 
vision. It  was  to  hear  appeals;  to  prescribe  forms  and  blanks; 
and  the  members  were  to  visit  the  counties  periodically  for 
personal  inspection  of  the  work  of  the  assessors. 

The  only  opportunity  to  correct  the  inequalities  of  local  assess- 
ment and  equahzation,  aside  from  such  influences  as  may  be 
expected  through  the  equalization,  by  counties,  is  through  the 
adjudication  of  the  appeals  which  may  be  brought  to  it  by  any 
taxpayer  or  by  any  assessor  or  member  of  a  town  or  county  board 


174  THE  STATE  TAX  COMMISSION 

of  review.  Appeals  must  be  heard  and  passed  upon  during  the 
last  of  the  three  annual  sessions;  but  the  absurd  statutory 
limitation  upon  the  duration  of  this  session  greatly  lessens  the 
usefulness  of  the  right  of  appeal,  since  the  larger  the  number  the 
more  hasty  and  superficial  must  be  the  treatment  of  each  case. 
The  board  may  reassess  the  property  in  controversy,  but  its 
action  is  limited  to  this  property.  It  should  have  the  authority 
to  reassess  an  entire  district,  either  upon  appeal  or  upon  its  own 
motion,  whenever  the  facts  seem  to  warrant  such  action.  The 
exercise  of  this  power  in  Wisconsin,  Michigan,  and  Minnesota 
has  been  of  great  significance  in  securing  closer  approximation 
to  equality  of  assessments. 

In  the  absence  of  the  necessary  direct  control  over  the  local 
assessments,  the  board  is  compelled  to  rely  upon  the  work  and 
influence  of  the  county  assessor,  a  new  administrative  agent 
created  in  1891.  This  official  is  really  a  county  supervisor  of 
assessments  and  should  be  under  the  control  of  the  state  board. 
Instead,  the  Indiana  county  assessor  is  elected  locally  and  the 
board  possesses  only  an  advisory  influence  over  him.  Much  has 
depended,  therefore,  upon  the  extent  to  which  the  state  board 
has  been  able  to  stimulate  and  inspire  the  county  assessors  to  a 
high  conception  of  their  duties  and  responsibilities.  The  powers 
actually  possessed  by  the  county  assessors  were  not  sufficiently 
broad  to  secure  the  best  results  but  they  sufficed  to  introduce, 
temporarily  at  least,  a  revolution  in  the  process  of  assessment  and 
to  make  the  county  assessor  in  many  respects  the  niost  important 
administrative  agent  in  the  whole  tax  system.  The  principal 
powers  and  duties  of  these  officials  were  the  following:  ^ 

1.  To  assess  omitted  property,  and  especially  to  search  out  the  hidden 
intangible  property.  For  this  purpose  the  county  assessor  may  exer- 
cise all  of  the  rights  and  powers  given  by  law  to  the  township  assessor 
for  the  examination  of  persons  and  property.  Omitted  property  may 
be  listed  at  any  time  during  the  year,  whenever  the  same  may  be 
discovered. 

2.  To  advise  and  instruct  all  township  assessors,  visiting  each  assessor  for 
this  purpose  during  the  assessment  season. 

3.  To  act  as  a  member  of  the  county  board  of  review. 

'  Tax  Laws  of  Indiana,  1912,  Article  15. 


TAX  COMMISSIONERS  OF  INDIANA  1 75 

If  the  county  assessor  be  industrious  and  able  he  can  do  much  to 
discover  evasion,  though  his  authority  over  undervaluation  is 
confined  to  his  possible  influence  with  the  local  assessors  and  the 
county  board  of  review.  The  advice  and  instructions  which  he 
may  give  the  former  will  be  based,  in  general,  upon  his  own  in- 
structions from  the  state  board  —  a  fact  which  emphasizes  the 
need  of  wise  direction  from  above  and  the  importance  of  his  own 
position  as  a  transmission  medium  for  the  ideas  of  the  leaders  in 
tax  administration. 

The  Indiana  county  assessors,  as  a  class,  appear  to  have  per- 
formed their  duties  in  a  fairly  efficient  manner  and  to  them 
belongs  much  of  the  credit  for  such  results  as  have  been  achieved 
in  increasing  valuations.  The  total  assessment  of  real  estate  was 
increased  in  189 1  by  $244,600,000,  or  44  per  cent,  and  that  of 
personal  property  by  $56,900,000,  or  24  per  cent.^  The  nature  of 
the  increases  in  personal  property  cannot  be  ascertained  on 
account  of  the  practice  of  receiving  only  the  aggregates  from  the 
counties.  The  evasion  of  intangibles  was  but  little  affected  by  the 
administrative  reform,  however.  An  attempt  to  compel  banks  to 
disclose  the  ownership  of  bank  deposits  and  securities  was 
thwarted  by  the  courts.^  The  exemption  from  state  taxation 
which  the  owners  of  United  States  notes  enjoyed  was  found  to 
facilitate  fraudulent  return  of  moneys,  and  the  board  memo- 
rialized Congress  to  remove  this  exemption.^  Congress  re- 
sponded with  a  law  making  Greenbacks  taxable  in  the  same 
manner  as  all  other  moneys  and  credits,"*  but  there  is  no  evidence 
that  the  amount  of  moneys  actually  assessed  was  increased 
thereby. 

Not  only  was  there  failure  to  secure  all  of  the  intangible  prop- 
erty; the  assessment  of  tangible  personalty  remained  quite 
unsatisfactory.  Horses  and  cattle  of  the  same  grade  continued 
to  be  assessed  in  some  counties  at  double  the  amount  that  they 
were  in  others.^    To  remedy  these  defects  the  first  convention 

'  Cf.  figures  below,  p.  181. 

2  State  Board  of  Tax  Commissioners,  Proceedings,  1891,  pp.  21-24,  36. 

'  State  Board  of  Tax  Commissioners,  Report,  1895,  p.  4. 

*  Untied  States  StattUes  at  large,  xxviii,  p.  278.    Approved  Aug.  13,  1894. 

'  State  Board  of  Tax  Commissioners,  Report,  1895,  p.  7. 


176  TEE  STATE  TAX  COMMISSION 

of  county  assessors  was  called  in  1894,  and  the  board  expressed 
the  belief  that  there  resulted  a  less  inequitable  assessment  of  per- 
sonal property  than  ever  before;  ^  but  as  has  been  shown  by  other 
admissions  of  that  body,  it  is  doubtful  if  the  assessment  of  intan- 
gibles had  been  greatly  improved.  A  second  conference  of  the 
county  assessors  was  called  in  1898,  and  since  that  time  the  ses- 
sions have  been  held  annually,  having  been  authorized  by  the 
legislature  in  1901.^  These  conventions  have  undoubtedly  been 
of  great  assistance  in  promoting  among  the  county  officials  uni- 
formity of  standards  as  well  as  enthusiasm  for  the  work;  and 
they  have,  without  question,  contributed  to  the  better  assess- 
ment of  property  though  again  the  state  board  has  been  inclined 
to  overstate  the  gain  that  has  been  achieved.  Thus,  in  1901, 
speaking  of  the  gain  of  $23,909,806  in  personalty  assessment 
from  1898  to  1899,  it  said:  ^ 

This  increase  of  property  of  personal,  and  in  many  cases,  of  an  intangible 
nature,  is  a  noticeable  and  gratifying  incident  of  the  assessment  of  1899. 
...  To  the  discernment  of  this  property  the  township,  county  and  state 
taxing  officials  have  directed  every  energy.  No  effort  has  been  spared  in 
driving  it  from  its  hiding  place  and  placing  it  upon  the  duplicate,  and  the 
fact  that  they  have,  in  a  measure,  been  successful  is  a  matter  for  con- 
gratulation. 

But  there  is  no  clue  to  the  extent  to  which  the  increase  consisted 
of  property  "  of  an  intangible  nature."  The  exemption,  in  1899, 
of  mortgage  credits  to  the  amount  of  $700,  but  not  to  exceed 
one-half  the  value  of  the  real  estate  security,  brought  forth  large 
amounts  on  which  the  exemption  was  claimed.*  By  1913  the 
total  mortgages  acknowledged  and  exempted  amounted  to 
$62,584,152.^  The  assessment  of  mortgages  in  1899  was  possibly 
increased  somewhat  through  this  law,  but  there  is  no  evidence 
that  other  forms  of  intangible  property  were  heavily  represented. 
On  the  contrary,  it  is  very  doubtful  if  such  was  the  case.  Because 
of  the  nature  of  the  reports  from  the  county  auditors,  the  board 
itself  had  no  sure  way  of  knowing  the  exact  character  of  the 

1  State  Board  of  Tax  Commissioners,  Report,  1895,  p.  7. 

*  Ibid.,  1901,  p.  II.  *  Ibid.,  pp.  8,9. 

*  Laws  of  Indiana,  1899,  ch.  190. 

'  State  Board  of  Tax  Commissioners,  Report,  1914,  p.  2t. 


TAX  COMMISSIONERS  OF  INDIANA  1 77 

increase,  and  was  therefore  probably  guessing  in  hinting  that  a 
considerable  part  of  it  was  of  an  intangible  nature. 

In  19 14  the  situation  was  discussed  with  greater  frankness  than 
ever  before.  It  was  impossible  to  dispute  the  evidence  of  in- 
equality contained  in  the  following  average  values  from  adjoining 
counties :  ^ 

Average  Assessed  Values  in  Certain  Adjoining  Counties 

Household 
County  Implements        goods       Automobiles       Horses  Cattle 

Daviess $40  $30  $350  $86  $30 

Knox 55  40  300  50  15 

Crawford 25  20  250  60  15 

Harrison 65  73  419  109  38 

Jackson 68  65  252  94  36 

Jennings 22  19  245  46  14 

Greene 40  50  400  125  50 

Sullivan 72  90  400  72  24 

Wholesale  evasion  of  intangible  personal  property  was  admitted. 
No  further  proof  of  this  condition  is  required  than  the  range  of 
tax  rates.    In  1913  the  average  rates  were  as  follows:  ^ 

Average  Rates  of  Taxation,  1913 

State  average $2,972  per  $100 

1016  townships 2.308    "       " 

393  towns 3.023    "       " 

97  cities 3.585    "       " 

These  figures  appear  to  establish  conclusively  the  fact  of 
inequality  of  assessment  among  counties.  Some  evidence  was 
given  above  which  seemed  to  indicate  a  similar  inequahty  in  land 
assessments.^  But  the  board,  in  its  resolution  of  191 2,''  preferred 
to  dwell  on  the  equity  of  the  intra-county  assessments,  since  the 
tax  burden  is  so  much  more  important  within  the  county. 

Data  for  satisfactory  tests  of  the  intra-county  assessments  are 
lacking.    The  ratio  of  personal  property  to  total  assessment  in 

'  State  Board  of  Tax  Commissioners,  Report,  1914,  pp.  9,  10. 

*  Proceedings  of  Ike  Second  Stale  Tax  Conference,  1914,  pp.  188-191. 
3  Cf.  above,  pp.  154!?. 

*  Cf.  above,  p.  160,  note. 


lyS  THE  STATE  TAX  COMMISSION 

fifteen  rural  counties,  no  one  of  which  contained  a  town  of  5000 
in  1910,  was  38  per  cent;  for  fifteen  counties,  each  of  which  con- 
tained a  city  of  19,000  or  over  in  1910,  the  ratio  of  personalty  to 
total  assessment  was  27.7  per  cent.  This  suggests  relative  over- 
assessment  of  personal  property  in  rural  districts,  a  well-known 
tendency  due  to  the  predominance  of  tangibles  in  those  sections, 
as  against  the  predominance  of  intangibles  in  the  cities.  Another 
test  of  the  intra-county  assessments  is  a  comparison  of  the  tax 
rates  for  township  purposes  in  the  same  county.  If  the  township 
assessors  have  been  equally  alert  in  searching  out  property  and 
have  used  the  same  standards  of  valuation,  the  rates  for  town- 
ship purposes  ought  to  be  fairly  equal  within  the  same  county. 
At  least,  such  extreme  differences  as  are  shown  below  would 
hardly  be  expected  unless  they  were  caused  by  wide  differences 
in  the  basis  of  assessment. 

Range  of  Township  Rates,  1913  ^ 

Some  Extreme  Variations 

County                       Range                                  County  Range 

Allen 2-25  mills                Lake 2-40  mills 

Crawford 10-60     "                  Monroe 10-55     " 

Delaware 2-12      "                   Orange 10-50     " 

Some  Less  Extreme  Variations 

Tipton 5-7    mills  Fayette 10-17  "lills 

Wabash 6-10     "  Ohio 14-25     " 

Rush 7-12     "  Park 8-18     " 

The  most  serious  weakness  in  the  policy  of  supervision  followed 
by  the  Indiana  board  has  been  the  excessive  reliance  upon  the 
irregular  and  infrequent  personal  contact  with  the  lower  tax 
officials.  True,  the  board  does  not  possess  some  of  the  most  essen- 
tial powers  for  adequate  supervision  of  local  assessments.  But 
it  has  acquired  a  simple  and  abiding  faith  in  the  local  assessor 
which  has  led  to  laxity  in  the  treatment  of  his  results. ^    Conse- 

1  State  Board  of  Tax  Commissioners,  Report,  1914.  The  figures  used  are  the 
levies  for  township  purposes,  and  do  not  include  such  matters  as  roads,  special 
school  districts,  or  any  other  extra  township  expense  for  which  a  special  levy  might 
be  made. 

2  Cf.  the  following  extract  from  a  letter  written  by  Commissioner  Link,  May  2, 
1912:    "The  tax  commission  deemed  that  an  ounce  of  prevention  was  worth  a 


TAX  COMMISSIONERS  OF  INDIANA  1 79 

quently,  the  dishonest  assessor  has  felt  himself  fairly  safe  against 
detection  under  the  easy  going  methods  of  the  state  board;  and 
the  incapable  one,  though  exposed,  has  remained  equally  secure 
against  removal.  This  sense  of  security  has  been  strengthened  by 
the  ebbing  influence  of  the  state  board  during  the  remainder  of 
each  year.  As  a  vital  directive  force  this  body  is  a  reality  to  both 
assessor  and  taxpayer  only  immediately  preceding  and  following 
the  assessment  season. 

While  the  policy  of  supervision  through  occasional  personal 
contact  is  fundamentally  weak  the  state  board  should  be  credited 
with  the  performance,  in  a  fairly  effective  way,  of  certain  other 
duties  which  have  not  been  without  their  effect  upon  the  course 
of  the  assessments.  First  in  importance  has  been  the  publication, 
from  time  to  time,  of  a  revised  compilation  of  the  tax  laws,  quite 
fully  annotated  with  extracts  from  the  leading  decisions.  These 
laws  have  been  construed  for  officials  and  taxpayers  and  the 
former,  at  least,  have  been  well  instructed  in  the  law  and  their 
duty  under  it.  The  county  assessors  have  been  meeting  in  annual 
conference  since  1898,  and  since  1901  have  been  allowed  mileage 
and  per  diem  for  attendance.  The  reports  of  these  meetings  show 
that  in  general  there  has  been,  perhaps,  too  little  space  on  the 
programs  given  to  carefully  prepared  papers,  though  in  general 
the  discussions  have  been  instructive.  The  law  requires  an  annual 
visit  to  each  county,  during  which  most  of  the  local  officials  come 
in  contact  with  the  visiting  member ;  but  the  latter  has  too  often 
been  tempted  to  rely  upon  the  casual  information  thus  obtained 
for  the  reviews  and  equalizations,  to  the  neglect  of  more  carefully 
prepared  materials. 

Potentially  one  of  the  most  important  duties  of  the  state  tax 
commission  is  that  of  making  recommendations  relative  to 
changes  or  improvements  in  the  tax  system.  The  more  impor- 
tant recommendations  of  the  Indiana  board  have  already  been 
noted,  in  the  proper  connection,  and  they  need  not  be  reviewed 
here.    The  Indiana  board  has  not,  in  the  past,  wielded  the  in- 

pound  of  cure,  and  so  they  have  visited  every  county  in  the  state  and  ad\'ised  with 
the  local  officials  and  as  a  result,  they  have  found  it  necessary  to  make  practically 
no  changes  in  the  local  returns." 


l8o  THE  STATE  TAX  COMMISSION 

fluence  in  shaping  the  progress  of  reform  legislation  that  some 
other  commissions  have  possessed  and  its  suggestions  have  not 
always  carried  great  weight.  The  recent  complete  change  of 
personnel  promises  to  yield  better  returns  of  suggestions,  criti- 
cisms, and  recommendations  for  the  improvement  of  the  Indiana 
tax  system.  The  State  Tax  Association,  formed  in  1914,  has  held 
two  conferences  on  taxation  and  is  perhaps  the  most  important 
agency  now  at  work  in  the  state  in  the  interests  of  tax  reform.^ 
The  failure  of  the  Commission  on  Taxation  to  inspire  confidence 
by  presenting  a  unanimous  report  along  constructive  lines  has 
been  noted  above.  There  is  no  very  great  prospect  at  present  of  a 
change  in  the  tax  system  in  the  near  future. 

1  The  first  Conference  was  held  at  Bloomington,  Indiana,  Feb.  5,6,  1914;   the 
second  in  Indianapolis,  December  i,  2,  1914. 


TAX  COMMISSIONERS  OF  INDIANA 


i8i 


APPENDIX  TO  CHAPTER  V 


Assessments  of  Property  in  Indiana  for  Selected  Years 
(millions  of  dollars) 


Year 


Lands 


Improve- 
ments on 
lands 


Lots 


Improve- 
ments on 
lots 


Personal 
property 


Corporation 
property 


1878 
1880 
1885 
1890 
1891 

189s 
1899 
1903 
1907 
1911 
1912 


389.8 
326.8 

330-7 
308.2 
450.2 

455-7 
452.6 
506.4 
SSO-2 
851.6 
820.1 


73.5 
62.7 

73-8 
69.1 

79.3 

80.3 

84.1 

100. o 

IIO.O 

393-0 

406.4 


94-2 

72.0 

73-4 

76.6 

140.9 

149.6 

159.6 

177.S 
203.7 


81.2 
71.9 
88.6 

lOO.I 

128.2 

150.3 
162.4 
192.2 
226.7 


198.3 
192.4 
217.0 
236.8 

293-7 
288.4 
318.9 
378-6 
428.4 
459-4 
459.4 


37-6 

38.4 

55.0 

66.2 

161.0 

156.5 

153.9 

182.0 

225.0 

256.7 

260.0 


Since  1911  lands  and  lots,  with  the  improvements  thereon,  have  not  been  re- 
turned separately. 

The  assessments  of  corporations  have  included,  in  recent  years,  an  increasing 
number  of  classes  of  corporations. 


CHAPTER  VI 

THE  STATE  TAX  COMMISSION  OF  NEW  YORK^ 

The  history  and  results  of  the  first  stages  of  the  movement  toward 
administrative  centralization  of  the  tax  system  in  New  York  have 
already  been  described. ^  It  was  there  shown  that  owing  to  in- 
adequate powers  the  earlier  state  board  of  assessors  accomplished 
but  little  for  real  tax  reform  and  that  its  actions  steadily  became 
more  and  more  formal.  Suggestions  had  not  been  wanting  for  a 
stronger  administrative  control  of  the  tax  system ;  but  these  were 
for  a  long  time  disregarded  and  bore  but  imperfect  fruit  in  1896 
when  the  state  board  of  tax  commissioners  was  created.  As  early 
as  1862  the  board  of  assessors  had  asked  for  more  effective  powers 
of  equalization  in  order  to  deal  with  local  neglect  and  incompe- 
tence.^ The  special  tax  commission  of  187 1  favored  greater 
centralization,  and  its  suggestion  for  the  establishment  of  a 
permanent  central  supervisory  authority  was  one  of  the  earHest 
in  the  United  States.*  The  board  of  assessors  continued  to  make 
its  recommendations  for  increased  administrative  authority,  and 
in  1877  it  presented  the  following  exceptionally  strong  statement 
of  the  case:  ^ 

After  an  experience  of  more  than  three  years  in  the  matter  of  assessment 
and  taxation,  and  some  knowledge  acquired  from  such  experience,  ...  we 
have  become  satisfied  that  wisdom  points  to  the  creation  of  a  State  depart- 
ment of  assessment  and  taxation,  with  its  principal  office  at  Albany,  .  .  . 
this  department  to  have  aU  the  powers  and  discharge  all  the  duties  now 
given  to  and  imposed  upon  the  State  Board  of  Assessors,  and  such  other 
powers  and  duties  as  the  legislature  may  deem  proper  to  grant  and  impose 
relating  to  local  assessors,  assessment  of  corporations  and  associations  or- 
ganized under  the  laws  of  this  state  or  doing  business  therein.    This  depart- 

1  Formerly  the  State  Board  of  Tax  Commissioners.    Title  changed  by  Laws  of 
New  York,  1915,  ch.  317. 
^  Cf.  above,  pp.  57  ff. 

^  State  Board  of  Assessors,  Report,  1862,  p.  12. 
*  Report  of  the  Special  Tax  Commission  of  New  York,  1871,  p.  49. 
'  State  Board  of  Assessors,  Report,  1877,  p.  6. 

183 


TAX  COMMISSION  OF  NEW  YORK  1 83 

ment  can  be  made  the  effective  head  of  the  assessing  power  of  the  state,  and 
with  ample  powers  to  make  rules  and  regulations  for  the  government  and 
control  of  local  assessors  in  the  discharge  of  their  duties,  and  for  removal 
for  incompetency,  neglect  of  duty  and  violation  of  the  rules  and  regula- 
tions of  the  department  or  of  any  statute  relating  to  assessments,  and  have 
such  other  powers  relative  to  the  assessment,  equalization  and  collection  of 
taxes  as  may  be  thought  proper. 

It  will  be  seen  that  these  suggestions  were  in  many  respects 
more  advanced  than  the  state  of  public  opinion  would  tolerate 
twenty  years  later  when  the  time  had  come  for  amendments  to 
the  administrative  part  of  the  tax  system.  As  early  as  1874  the 
board  of  assessors  had  recommended  that  all  moneyed  corpora- 
tions be  required  to  report  under  oath  to  the  comptroller  the 
amount  of  their  capital  stock  and  surplus  and  that  such  corpora- 
tions should  be  assessed  directly  by  the  comptroller,  at  some 
equitable  and  uniform  rate  in  proportion  to  the  value  of  their 
stock. ^  This  suggestion  was  repeated  in  1875  -  and  was  probably 
instrumental  in  securing  the  introduction  of  the  principle  of 
classification,  which  was  initiated  by  the  corporation  tax  of  1880.^ 

Finally,  in  1893,  a  special  tax  commission  reported  very 
emphatically  in  favor  of  greater  centralization  of  powers  and 
proposed  the  creation  of  a  board  of  state  tax  commissioners  which 
was  to  supplant  the  board  of  assessors.*  According  to  this  special 
tax  commission  the  two  principal  causes  for  the  decline  in  the 
assessment  of  personal  property  had  been  first,  the  right  of 
deducting  debts  from  the  assessed  valuation  of  personalty;  and 
second,  the  absence  of  provision  for  a  proper  equalization.^  The 
first  of  these  defects  was  unqualifiedly  condemned  by  the  special 
commission,  as  it  had  been  by  the  state  assessors  for  years  past. 
Inasmuch  as  personal  property  was  not  considered  at  all  in  the 
equalization,  the  local  assessor  was  under  the  strongest  incentives 
to  omit  it  entirely.  To  meet  this  difficulty  the  special  tax  com- 
mission of  1893  advanced  a  scheme  of  central  control  over  the 

*  State  Board  of  Assessors,  Report,  1874,  p.  18. 
^  Ibid.,  1875,  pp.  22,  23. 

*  Cf.  Seligman,  Essays,  p.  200.  Also,  Report  of  Subcommittee  of  the  Board  of 
Taxes  and  Assessments  of  New  York  City,  19 13,  on  the  Taxation  of  Personal  Property. 

*  Report  of  the  Special  Tax  Commission  of  New  York,  1893,  pp.  8-10. 
^  Ibid. 


184  TEE  STATE  TAX  COMMISSION 

equalization  process  similar  in  principle  to  that  suggested  by  the 
Massachusetts  tax  commission  of  1875.^  The  New  York  idea 
was  to  enlarge  the  board  of  state  assessors  to  five  members  and 
require  one  member  to  preside  at  the  meetings  of  the  county 
board  in  each  county,  for  the  purpose  of  acting  as  an  arbiter  in 
case  of  disputes.  An  appeal  was  to  be  allowed  to  the  whole 
board  from  the  decisions  of  the  single  members.  The  recommen- 
dations of  the  commission  of  1893  were  the  source  of  many  of  the 
provisions  of  the  bill  passed  in  1896,  but  the  above  suggestion 
failed  of  adoption,  as  did  many  of  those  providing  for  an  effective 
extension  of  powers.  Thus  the  commission  had  proposed  that  the 
permanent  tax  commission  should  appraise  and  value  all  trans- 
portation and  transmission  companies  and  apportion  the  valua- 
tions among  the  taxing  districts,  but  this  was  omitted.^  After  the 
manner  of  the  Indiana  law,  general  supervisory  powers  were 
suggested  with  the  additional  authority  to  report  to  the  governor 
any  negligence  of  a  local  official;  but  the  supervisory  powers 
actually  provided  proved  to  be  merely  advisory  in  effect  and  the 
state  board  of  tax  commissioners  was  left,  as  the  board  of  asses- 
sors had  been  of  old,  with  no  adequate  authority  to  enforce  its 
suggestions.  Other  suggested  features  which  failed  of  incorpora- 
tion in  the  bill  as  enacted  were  the  five-year  term  for  the  tax 
commissioner,  and  the  removal  of  the  ex  ofl&cio  members  from  the 
state  board  of  equalization,  making  the  latter  body  coextensive 
with  the  new  tax  board.  The  creation  of  the  board  of  tax  com- 
missioners in  1896  was,  therefore,  little  more  than  a  continuance 
of  the  old  state  board  of  assessors  under  a  new  name.  In  1915  the 
law  was  rewritten.^  No  additional  duties  were  imposed,  but  the 
commission's  powers  in  exercising  former  functions  were  materi- 
ally enlarged.    These  functions  may  be  arranged  as  follows: 

I.  Certain  administrative  duties  under  the  general  property  tax,  chief  of 
which  are: 

{a)  preparation  of  the  data  for  the  use  of  the  state  board  of  equali- 
zation; 

1  Cf.  above,  p.  41,  for  a  description  of  the  Massachusetts  plan.     Also,  Report  of 
the  Special  Tax  Commission  of  New  York,  1893,  pp.  17,  18. 
^  Ibid.,  pp.  20,  21;  also,  pp.  86-92. 
'  Laws  of  New  York,  1915,  ch.  317. 


TAX  COMMISSION  OF  NEW  YORK  1 85 

(b)  supervision  of  the  local  officials; 

(c)  hearing  appeals  and  complaints; 

2.  Administration  of  the  corporation  taxes; 

3.  Administration  of  the  mortgage  registry  tax; 

4.  Study  of  the  tax  system  and  recommendation  of  improvements. 

Equalization 

The  reforms  of  1896  made  no  change  in  the  organization  of  the 
state  board  of  equalization  beyond  substituting  the  tax  com- 
missioners for  the  former  state  assessors.^  The  importance  which 
in  many  states  from  the  middle  of  the  nineteenth  century  has 
been  attached  to  the  equalization  process  was  lost  in  New  York 
for  some  years  because  of  the  abandonment  of  the  direct  state 
tax.  In  1902  the  state  levy  was  0.13  mills  on  the  dollar,  for  canal 
purposes.^  All  direct  state  taxes  were  relinquished  in  1906,  but 
the  deficiencies  in  state  revenues  led  to  the  reintroduction  of  a 
direct  tax  in  191 1.  In  this  year  also  the  commission  was  required 
to  equalize  special  franchise  tax  assessments  to  the  same  percent- 
age of  true  value  in  each  district  as  that  used  by  the  local  assessor 
in  the  assessment  of  general  property.^  The  process  of  state 
equahzation  had  been  carried  on  notwithstanding  the  disappear- 
ance of  the  state  tax,  though  its  only  value  lay  in  the  possible 
effect  upon  local  assessments.  As  will  be  seen,  this  effect  was 
almost  negligible.* 

The  board  of  tax  commissioners  followed  the  practice  begun 
long  ago  by  the  board  of  assessors,  of  preparing  an  average  ratio 
of  assessed  to  true  value  of  the  real  property  in  each  county, 
using  for  that  purpose  the  returns  from  the  assessors  and  the  data 
gathered  by  the  commissioners  in  the  biennial  visits  which  they 
were  required  to  make  to  each  county.  These  compilations  were 
of  little  value  for  a  number  of  years,  as  their  preparation  seems 
to  have  been  largely  a  formal  matter,  undertaken  without  ade- 
quate data  regarding  true  values  in  many  of  the  counties.  Some 
reliance  was  placed  by  the  commissioners  upon  the  biennial  visits 

*  The  state  board  of  equalization  is  composed  of  the  commissioners  of  the  land 
oflBce  (the  elective  state  oflQcials)  and  the  tax  commissioners. 

^  State  Board  of  Tax  Commissioners,  Report,  1913,  p.  39. 
'  Ibid.    Cf.  Report  of  Comptroller,  191 1,  pp.  8-10. 

*  Cf.  below,  pp.  19s  ff. 


1 86  THE  STATE  TAX  COMMISSION 

to  the  counties  in  checking  up  the  computations  but  in  these 
visits  there  was  neither  the  field  nor  the  office  work  which  would 
constitute  an  effective  check  upon  the  data  compiled  by  the  local 
assessors.  Until  recently,  therefore,  the  state  equalization  partic- 
ipated in  by  the  state  tax  commissioners  has  been  very  largely  a 
formal  and  routine  process,  varied  by  logrolling  and  affording 
little  guarantee  of  an  accurate  check  upon  the  local  assessments. 
This  judgment  of  the  board's  ratios,  based  upon  the  loose  and 
easy-going  method  of  compilation,  is  confirmed  by  an  examina- 
tion of  the  actual  percentages  prepared.  Appended  to  this  chap- 
ter is  a  table  containing  the  ratios  for  each  county  from  1896  to 
1915.^  These  figures  reveal  a  decided  upward  tendency  especially 
in  the  early  years  of  the  period,  but  in  view  of  the  methods  of 
construction  employed  these  advances  cannot  be  taken  without 
further  evidence  as  an  indication  of  the  elevation  of  local  assess- 
ments. Unfortunately  the  strongest  testimony  available  is  to  the 
effect  that  competitive  undervaluation  was  quite  prevalent  even 
toward  the  end  of  this  period.  A  former  chairman  of  the  board 
recently  made  the  following  sweeping  statement  concerning  rural 
assessments  in  particular,  but  applicable,  according  to  the  speaker, 
to  urban  conditions  as  well.    He  said:  ^ 

There  are  only  a  few  tax  districts  in  the  state  where  the  assessors  make 
any  pretense  of  assessing  real  property  at  full  value,  as  required  by  law,  and 
I  do  not  at  this  time  recall  a  single  instance  where  this  result  is  actually  at- 
tained. Underassessment  is  the  rule  throughout  the  entire  state,  and  in 
nearly  all  tax  districts  intentionally  and  purposely  so. 

The  true  percentages  of  assessed  to  true  value  were  estimated  by 
the  above  speaker  to  range  between  25  per  cent  and  90  per  cent, 
and  outside  of  New  York  City,  the  average  was  thought  to  be 
below  70  per  cent.  And  yet,  in  191 1,  only  seven  out  of  sixty-one 
counties  were  given  ratios  of  less  than  70  per  cent,  and  in  1914 
the  number  below  70  per  cent  was  only  fourteen.  Further,  the 
figures  assigned  to  individual  counties  in  different  years  have 
displayed  some  rather  impossible  variations.    Attention  is  called 

^  Cf.  below,  pp.  212,  213. 

^  E.  E.  Woodbury,  in  State  Conference  on  Taxation,  191 2,  p.  132.  But  cf.  also, 
the  interesting  paper  on  village  assessment,  describing  the  work  of  one  alert  and 
capable  local  board  of  assessors,  ibid.,  pp.  365-380. 


TAX  COMMISSION  OF  NEW  YORK  1 87 

especially  to  the  ratios  for  Chautauqua,  Herkimer,  and  West- 
chester counties.  Singularly  enough,  once  a  county  has  reached 
a  comfortably  high  ratio,  yearly  variations  have  almost  ceased 
immediately,  although  it  is  incredible  that  successive  generations 
of  assessors  should  have  been  able  to  maintain  uniformly  a  high 
basis  of  assessment  when  there  had  previously  been  such  great 
difficulty  with  assessments  on  a  lower  basis. 

Many  of  these  high  ratios  had  been  established  through  the 
influence  of  the  other  members  of  the  state  board  of  equalization, 
for  political  reasons.  Here  may  be  observed  the  ex  officio  member 
in  his  characteristic  role  of  political  opportunist.  It  is  rather 
encouraging  to  note  that  in  recent  years  the  ratios  have  been 
scaled  down  somewhat  from  the  earlier  high  levels.  The  more 
thorough  work  of  the  local  and  state  boards  in  collecting  data 
upon  which  to  determine  an  accurate  ratio,  and  the  greater  power 
and  responsibility  for  efficient  tax  administration  which  have  been 
lodged  with  the  state  tax  commission  have  together  accounted 
for  this  wholesome  reaction. 

Since  the  results  of  the  state  equalization  do  not  extend  be- 
yond the  county,  the  principal  inquiry  to  be  taken  up  is  that  of  its 
effect  upon  the  distribution  of  the  tax  burden  among  the  coun- 
ties. From  an  examination  of  the  equalization  tables  published 
in  the  annual  reports,  it  appears  that  in  the  first  few  years  after 
1896  the  counties  containing  large  cities,  especially  Erie,  Kings, 
and  New  York  counties,  were  held  to  be  underassessed  as  com- 
pared with  the  remainder  of  the  state.  The  precedent  of  the  older 
board  of  equalization  was  therefore  followed, ^  in  easing  up  the 
assessments  over  the  state  and  piling  the  excess  upon  a  few  char- 
acteristically urban  counties.  To  illustrate  the  practice,  the 
results  of  the  equalizations  from  1900  to  1903  will  be  taken. 
The  total  change  made  in  all  counties  of  the  state  and  also  the 
amounts  by  which  six  urban  counties  were  changed  are  presented 
in  the  table  on  the  next  page. 

During  these  years  assessments  were  equahzed  by  distributing 
as  decreases  over  the  rest  of  the  state  the  amounts  which  were 
added  to  these,  supposedly  the  chief  offenders.    This  policy  was 

1  Cf.  above,  pp.  66  ff. 


1 88  THE  STATE  TAX  COMMISSION 

Results  of  the  State  Equalization,  1900-03 1  (millions) 

Total  decrease  in  Total  increase  in  the  assess- 

Year  state  assessment  ments  of  six  counties 

1900 $170.8  $166.6 

1901 178. 1  173-6 

1902 183.7  179.4 

1903 186.8  180.7 

evidently  a  remnant  of  the  feud  that  was  waged  for  so  long  be- 
tween the  urban  interests,  especially  New  York  City,  and  the  rural 
portions  of  the  state.  In  1900  the  joint  commission  of  taxation 
stated  that  the  process  of  equalization  thus  followed  ^ 

.  .  .  has  seemed  just  to  rural  communities,  but  it  has  been  borne  with 
great  reluctance  by  the  others,  and  it  is  safe  to  say  that  there  is  scarcely  a 
taxpayer  in  the  City  of  New  York  who  does  not  feel  that  as  a  result  of  this 
equalization  he  has  most  grossly  suffered. 

In  1903  the  charter  of  Greater  New  York  was  amended  to 
provide  for  a  separate  assessment  of  land  and  buildings  and  the 
valuation  of  that  whole  district  was  greatly  increased.  One  of 
the  leading  incentives  to  the  improvement  in  the  basis  of  assess- 
ment in  New  York  City  was  the  need  for  further  expansion  in  the 
borrowing  power,  the  limit  to  which  was  10  per  cent  of  the 
assessed  valuation.^  The  total  increase  in  the  assessment  of  real 
property  for  the  entire  state  in  1904  was  $1,451,746,076,  of  which 
$1,218,443,963  was  in  Greater  New  York.  In  consequence  of 
this  phenomenal  gain  the  state  board  was  forced  to  reverse  its 
traditional  policy  and  the  state  equalization  has  since  consisted  of 
the  attempt  to  bring  up  the  large  majority  of  counties  to  the 
level  of  the  few  in  which  better  methods  of  assessment  have  been 
introduced.  The  equity  of  the  basis  on  which  these  adjustments 
have  been  made  may  be  questioned  as  there  was  until  191 2  prac- 

^  From  the  annual  Reports  of  the  Board  of  Tax  Commissioners. 

^  Report  of  the  Joint  Committee  on  Taxation,  1900,  p.  6.  In  all,  ten  cities  make  a 
separate  assessment  of  lands  and  buildings.  Cf.  Slate  Conference  on  Taxation,  191 1, 
p.  157.  Cf.  also  State  Board  of  Tax  Commissioners,  Report,  1902,  pp.  13,  14;  ibid., 
I903)  P-  16.  Also,  Lawson  Purdy,  "  The  Assessment  of  Real  Estate  in  the  City  of 
New  York,"  in  Report  of  the  Department  of  Taxes  and  Assessments,  1908,  pp.  85-89. 

'  The  debt  of  Greater  New  York,  less  sinking  fund  assets,  rose  from  $326,038,392 
in  1902  to  $862,343,861  in  1913.  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation, 
1913,  i,  p.  425. 


TAX  COMMISSION  OF  NEW  YORK  1 89 

tically  no  improvement  in  the  method  of  compiling  the  ratios. 
In  this  year  the  commission  secured  an  amendment  which 
provided  a  new  and  much  more  effective  rule  for  making  the  local 
equalization.  The  enlarged  authority  conferred  upon  the  tax 
commission  by  the  legislation  of  19 15  will  enable  it  now  to  make 
a  much  more  equitable  equalization  than  was  formerly  possible. 
There  can  be  no  question,  also,  of  the  beneficial  influence  upon 
valuations  which  has  come  from  the  progressive  policy  of  real 
estate  assessments  developed  in  New  York  under  the  lead  of  the 
city  department  of  taxes  and  assessments. 

The  anomaly  of  a  state  board  of  equahzation  controlled  by  the 
elective  state  officers  should  be  ended  by  constituting  the  state 
tax  commission  the  board  of  equalization.  In  191 5  the  tax  com- 
mission succeeded  in  convincing  the  other  members  of  the  board 
of  equalization  by  its  array  of  statistical  data  and  its  recommen- 
dations as  to  the  ratios  were  adopted  as  a  whole  though  they 
involved  numerous  reductions.  Such  action  runs  counter  to  the 
natural  grain  of  the  politician,  however,  and  in  1916  the  board  of 
equalization  rejected  the  commission's  recommendations.*  Such 
experiences  were  formerly  the  rule  in  New  York  and  they  have 
been  encountered  in  other  states.  A  bill  providing  the  reform 
here  recommended  was  introduced  in  the  session  of  1916. 

The  law  has  never  required  an  equalization  of  personal  prop- 
erty. This  would  be  of  httle  significance  at  the  present  because  of 
the  relatively  small  amount  of  personal  property  assessed  for 
taxation  under  the  general  property  tax.  From  the  year  1866,  in 
which  the  assessment  of  personal  property  was  25.5  per  cent  of 
the  total,  there  has  been  a  steady  decline.  In  1870  the  propor- 
tions of  personal  and  real  property  were  22  per  cent  and  78 
per  cent,  respectively;  by  1898  the  former  had  declined  to  14.6 
per  cent,  and  in  1914  to  3.77  per  cent.  The  amount  of  personal 
property  assessed  declined  absolutely,  from  $702,500,000  in  1905 
to  $424,900,000  in  1913,  but  rose  again  to  $454,500,000  in  1915. 
The  decrease  may  have  been  caused  in  part  by  the  adoption  of 
various  plans  in  recent  years  for  the  taxation  of  certain  forms  of 

1  Cf.  New  York  Evening  Post,  February  3,  1917,  quoting  remarks  of  Controller 
Prendergast. 


190  THE  STATE  TAX  COMMISSION 

property  by  special  methods,  such  as  the  i  per  cent  tax  on  bank 
shares  ^  and  the  mortgage  registration  tax.^  But  the  tax  com- 
mission has  denied  the  sufficiency  of  these  explanations  and  has 
concluded  that  the  several  special  methods  of  taxing  personal  prop- 
erty reveal  the  immense  amounts  which  are  escaping  taxation 
rather  than  the  successful  assessment  of  important  quantities.' 
Thus,  the  assessment  of  personal  property  increased  for  some 
years  after  the  exemption  of  bank  stocks  in  1901;  the  capital 
stock  of  all  domestic  corporations  and  of  all  foreign  corporations 
which  represents  investments  in  the  state  are  supposed  to  be 
included  in  the  total  assessment  of  personalty,  the  volume  of 
which  is  steadily  diminishing;  the  exemption  of  savings  deposits 
has  been  made  the  means  of  evasion  for  the'wealthy  instead  of  an 
encouragement  to  thrift  on  the  part  of  the  poor.  The  special  tax 
commission  of  1907  found  one  estate  which  had  deposits  in  every 
savings  bank  in  the  state  between  and  including  Buffalo  and 
Albany.*  This  body  condemned  unsparingly  the  loose  system  of 
allowing  reduction  by  "  swearing  off  "  the  assessment,  by  which 
the  reduction  obtained  by  residents  ranged  from  60  per  cent  to 
70  per  cent.^  Though  unanimous  in  its  statement  of  the  diffi- 
culty, the  commission  of  1907  was  unable  to  agree  on  the  reme- 
dies to  be  applied,  the  majority  advocating  a  more  strenuous 
enforcement  of  the  present  system  and  the  minority  reviving  the 
proposal  for  a  graduated  house  or  habitation  tax.^  The  board  of 
tax  commissioners  has  strongly  urged  classification  of  personal 
property,  with  low  uniform  rates  for  each  class.'' 

The  latest  investigation  and  discussion  of  the  personal  prop- 
erty situation  is  that  of  the  Joint  Legislative  Committee  on 

1  Laws  of  New  York,  1901,  ch.  550. 

*  Ibid.,  1905,  ch.  729,  amended  by  Laws  of  New  York,  1906,  ch.  532. 

*  Ibid.,  1910,  p.  13.  The  Joint  Legislative  Committee  on  Taxation,  1916,  in  dis- 
cussing this  point,  granted  that  these  exemptions  did  reduce  for  the  time  the  volume 
of  taxable  personalty,  but  held  that  the  fact  of  exemption  had  no  effect  on  the  per- 
centage of  assessed  personalty  to  realty.     Report,  1916,  p.  68. 

*  Report  of  the  Special  Tax  Commission  of  New  York,  1907,  p.  25. 
^  Ibid.,  pp.  69-98. 

*  Ibid.,  pp.  4C»-57,  especially  pp.  51-57.  Cf.  Report  of  the  Special  Tax  Commis- 
sion of  New  York,  1871,  pp.  107,  108;   Seco7id  Report,  1872,  pp.  38-49. 

^  Their  latest  discussion  is  in  the  report  for  1910,  p.  16. 


TAX  COMMISSION  OF  NEW  YORK  191 

Taxation,  which  reported  in  191 6.  This  committee  made  a  very 
careful  and  extensive  study  of  the  whole  New  York  system  of 
taxing  personalty.  It  recommended  a  complete  change,  including 
the  abolition  of  the  present  personal  property  tax,  the  withdrawal 
of  general  business  corporations  from  the  operation  of  the  fran- 
chise tax  for  state  purposes,  and  the  substitution  of  an  income 
tax.^  The  committee  was  evidently  more  impressed  by  the  results 
obtained  in  Wisconsin  from  the  income  tax  than  by  those  secured 
elsewhere  from  the  various  other  substitutes  for  the  present  per- 
sonal property  tax.  The  practical  point,  that  centralized  assess- 
ment of  property,  even  at  lower  rates,  would  be  impossible  in 
New  York  without  a  constitutional  amendment,  while  a  centrally 
administered  assessment  of  incomes  would  not  encounter  this 
di£&culty,  doubtless  influenced  the  committee  somewhat,  since  it 
was  quite  strongly  of  the  opinion  that  no  locally  administered 
substitute  for  the  personal  property  tax  would  afford  any  material 
improvement  over  the  present  condition.^ 

Supervision  of  the  Local  Officials 

The  increasing  embarrassment  in  which  the  state  tax  officials 
have  found  themselves  as  a  consequence  of  the  conditions  of 
undervaluation  and  evasion  which  have  just  been  described 
renders  the  more  important  any  central  supervision  which  may 
be  attempted  over  the  local  tax  system.  Previous  to  the  amend- 
ment of  19 1 5  the  New  York  law  did  not  make  use  of  the  language 
so  frequently  found  in  statutes  creating  tax  commissions,  con- 
ferring "  general  supervision  "  over  the  tax  system;  but  the  New 
York  tax  commission  came  in  contact  with  the  work  of  the  local 
officials  in  various  ways  and  a  sort  of  supervision  was  maintained . 
The  oversight  thus  exercised  did  not  have,  however,  the  full, 
vigorous  and  efifective  sweep  that  has  been  characteristic  of  the 
relations  of  some  other  commissions  to  the  local  officials. 

The  first  of  the  points  at  which  the  tax  commission  has  come  in 
contact  with  the  local  assessment  has  been  in  connection  with  the 
local  equalization. 

1  Cf.  Report  of  the  Joint  Legislative  Committee,  1916,  pp.  206-208. 
'  Cf.  its  comprehensive  but  concise  review  of  the  principal  substitutes  for  the 
personal  property  tax,  ibid.,  pp.  161-206. 


192  THE  STATE  TAX  COMMISSION 

The  intra-county  equalization  is  performed  by  the  county 
board  of  equalization,  which  is  composed  of  the  county  board  of 
supervisors.  The  authority  of  the  county  board  of  equahzation 
is  Hmited  to  a  redistribution  of  the  assessors'  figures  without 
change  of  the  total ;  but  in  view  of  the  conditions  of  local  assess- 
ment which  were  asserted  by  former  chairman  Woodbury  to  be 
wellnigh  universal,  an  equalization  performed  under  such  restric- 
tions could  not  be  of  great  value  in  lessening  local  inequalities.^ 
Until  191 1  the  methods  which  the  county  boards  had  been  allowed 
to  use  were  very  loose  and  the  local  assessments  had  become 
extremely  demoralized.  In  Erie  county,  for  instance,  it  had  been 
the  custom  for  years  to  use  as  the  basis  of  equalization  for  each 
district  a  fixed  and  arbitrary  valuation  which  had  been  deter- 
mined by  logrolling  and  which  had  no  necessary  relation  to  the 
true  valuations  of  property  in  the  various  taxing  districts. ^  The 
tax  commissioners  criticized  the  conditions  in  almost  every  annual 
report  ^  but  not  until  191 1  were  they  successful  in  securing  a  law 
requiring  the  use  of  a  definite  rule  of  equahzation.*  The  principal 
motive  for  competitive  undervaluation  by  the  local  officials  has 
apparently  been  the  desire  to  reduce  the  share  of  state  and  county 
taxes  for  their  districts.  From  1906  to  191 1  there  was  no  direct 
state  tax,  and  for  some  years  before  1906  the  state  levy  had  been 
negligible;  but  there  has  remained  incentive  enough  for  under- 
assessment in  the  desire  to  avoid  the  proper  proportion  of  the 
county  taxes. ^  The  statement  was  made  at  the  Utica  tax  confer- 
ence, in  191 1,  that  the  city  and  the  rural  districts  fought  bitterly 
to  shift  the  tax  burden  and  that  the  local  equalizations  were  made 
in  utter  disregard  of  the  law.® 

The  plan  which  the  tax  commission  recommended  in  191 1  for 

^  Cf.  above,  p.  186. 

2  State  Conference  on  Taxation,  191 2,  p.  436.  Cf.  New  York  State  Tax  Commis- 
sion, Report,  I9i5,pp.  11,  12.  After  discussing  the  former  practices  in  equalization 
the  commission  says:  "...  it  seems  that  the  equalization  of  assessed  values  in 
former  years  must  have  been  largely  a  matter  of  guesswork." 

^  State  Board  of  Tax  Commissioners,  Report,  1897,  p.  12;  ibid.,  1910,  p.  23. 

*  Laws  of  New  York,  1911,  ch.  801. 

*  Cf.  the  discussion  of  the  weight  of  the  tax  burden  by  the  Joint  Legislative 
Committee  in  its  Report,  1916,  passim. 

*  State  Conference  on  Taxation,  191 2,  p.  435. 


TAX  COMMISSION  OF  NEW  YORK  1 93 

the  improvement  of  the  local  equalization  covered  two  points  ^  — 
first,  the  rule  to  be  followed  in  making  the  equalization,  and 
second,  supervision  of  the  assessment  and  equalization  by  the 
state  board.  It  was  strongly  urged  that  the  latter  power  should 
include  the  right  to  order  a  reassessment  of  property  in  any  dis- 
trict on  the  production  of  evidence  of  gross  inequality  or  of  clear 
evasion  of  the  statute.  Central  supervision  was  to  be  exercised 
through  county  super\asors  of  taxes  who  were  to  be  chosen  by 
the  board.  The  proposals  for  more  effective  central  supervision 
failed  of  adoption  at  that  time  though  the  first  suggestion,  that 
of  a  rule  of  equalization,  was  accepted.  This  rule  required  the 
board  of  county  supervisors  to  equalize  on  the  basis  of  true  and 
full  value,  which  they  were  to  determine  by  appropriate  inquiries. 
The  law  did  not  indicate  any  particular  method  to  be  employed 
in  ascertaining  the  true  value,  but  it  will  be  recognized  that  what- 
ever the  means  employed  —  sampling  or  the  sales  method  —  the 
proper  observance  of  the  rule  involved  the  collection  and  use  of 
many  complex  data  of  values.  The  responsibility  for  the  collec- 
tion of  the  data  and  the  compilation  of  the  ratios  rested  on  the 
board  of  super\dsors,  who  as  a  class  could  hardly  have  been 
equipped  and  qualified  to  gather  and  organize  the  information 
necessary  to  the  best  operation  of  such  a  rule  of  equalization. 

The  second  feature  of  the  commission's  plan,  that  of  central 
supervision  of  the  local  assessment,  was  adopted  in  1915.^  The 
commission  thereupon  immediately  organized  a  bureau  of  local 
assessments,  equalization,  and  statistics,  for  the  purpose  of  aiding, 
directing,  and  checking  up  the  local  assessment  and  equalization. 
The  data  on  equalization  in  the  possession  of  the  state  tax  de- 
partment were  found  to  be  entirely  worthless.  The  sales  were 
unverified  and  had  evidently  been  selected  by  those  who  reported 
them  —  whether  private  citizens  or  assessors  —  for  the  purpose 
of  proving  the  case  in  point.  The  county  boards  had  been  dila- 
tory in  adopting  the  legislative  rule  of  equahzation.  An  enabhng 
act  legaHzing  the  equalizations  of  191 2  had  been  required,^  and 
in  May,  191 5,  the  commission  was  obliged  to  issue  an  order  to 

^  State  Board  of  Tax  Commissioners,  Report,  igio,  pp.  26,  27. 
^  Laws  of  New  York,  1915,  ch.  317.  *  Ibid.,  1912,  ch.  20. 


194  ^^^  STATE  TAX  COMMISSION 

certain  county  boards  to  comply  with  this  section  of  the  tax  law 
and  to  file  their  schedules  of  percentages  with  the  state  tax 
department. 

The  first  task  of  the  new  bureau  of  local  assessment,  equahza- 
tion,  and  statistics  was  to  compile  the  data  upon  which  a  more 
reliable  review  and  equalization  of  the  local  assessment  might  be 
made  by  the  tax  commission.  The  sales  data  were  carefully 
verified  and  were  supplemented  by  indicia  of  values  gathered 
from  various  other  sources,  such  as  the  appraisals  of  real  estate 
by  banking  institutions,  insurance  companies,  local  real  estate 
experts,  and  the  probate  courts.^  From  these  and  other  sources 
the  commission  compiled  a  tentative  and  a  final  ratio  of  assessed 
to  true  value  for  each  of  about  1600  municipal  subdivisions  of  the 
state.  These  data,  and  the  ratios  prepared  therefrom,  were  sub- 
mitted to  the  state  board  of  equahzation  in  191 5,  and  were 
unanimously  adopted  by  that  body  as  the  basis  for  distributing 
the  state  tax  among  the  counties.  While  the  local  boards  may 
use  other  percentages  in  making  the  intra-county  equalization, 
the  strict  enforcement  of  the  order  requiring  that  these  percent- 
ages be  filed  with  the  tax  commission,  together  with  that  body's 
power  of  ordering  reassessment  and  securing  a  review  of  the 
local  procedure,  will  enable  the  New  York  tax  commission  to 
follow  up  and  really  supervise  the  local  assessment  and  equaliza- 
tion quite  as  effectively  as  this  is  now  being  done  in  any  other 
state.  The  New  York  appropriations  have  not  been  stinted, 
either,  and  the  tax  commission  need  have  no  difficulty  on  the 
ground  of  expense  in  the  development  of  its  elaborate  and 
efficient  organization. 

The  amendment  of  19 15  authorized  the  tax  commission  to  call 
a  conference  of  all  assessors  in  the  state  at  least  as  often  as  once 
in  two  years.  The  travelling  expenses  of  the  assessors  to  these 
meetings  are  to  be  a  charge  against  the  tax  districts  represented. 
The  first  of  these  conferences  was  held  in  19 16,  in  connection  with 
the  Sixth  State  Tax  Conference,  and  the  report  of  the  proceedings 
indicates  that  the  meeting  was  very  successful.   One  of  the  most 

1  The  various  sources  are  described  in  the  report  of  the  tax  commission  for  1915, 
pp.  12-15.  Cf.  also  "  Review  of  Local  Assessments,"  pubUshed  as  Tax  Bulletin,  i, 
no.  5,  November,  19 16. 


TAX  COMMISSION  OF  NEW  YORK  1 95 

surprising  and  significant  features  was  the  enthusiastic  response 
of  the  assessors  themselves.  The  commission  has  published,  as  a 
supplementary  assessors'  manual  in  the  form  of  question  and 
answer,  several  hundred  of  the  more  important  and  difl&cult 
points  raised  by  the  assessors  in  the  course  of  the  meetings. 

Appeals  may  be  taken  to  the  state  tax  commission  by  any 
supervisor  on  behalf  of  the  town,  city  or  ward  which  he  wholly  or 
in  part  represents,  "  from  any  act  or  decision  of  the  board  of 
supervisors  in  the  equalization  of  assessments  and  the  correction 
of  the  assessment  roll."  ^  In  any  case,  the  appeal  must  be  sup- 
ported by  a  majority  of  the  supervisors  of  the  town  or  city,  or  the 
alderman  of  the  ward,  a  very  undesirable  hmitation  upon  the 
freedom  of  appeal.  The  commission  is  required  to  hear  the  appeal 
in  the  county  in  which  it  originated  and  in  granting  reUef  it  is  not 
allowed  to  alter  the  county  total  as  returned  by  the  assessors. 
This  restriction  does  not  offer  much  leeway  for  the  correction  of 
improper  assessments.  These  limitations  on  the  right  of  appeal 
and  on  the  subject  matter  of  the  appeal  render  this  part  of  the 
commission's  jurisdiction  of  small  practical  advantage. 

The  failure  to  provide  the  greatest  freedom  of  resort  by  individ- 
uals to  the  tax  commission  is  a  serious  weakness  of  the  New  York 
tax  law.  Of  very  doubtful  compensatory  advantage  is  the  priv- 
ilege of  petitioning  the  supreme  court,  asking  that  a  writ  of 
certiorari  be  issued  to  the  assessing  officers  for  a  review  of  the 
assessment.  Upon  the  return  of  such  writ,  the  court  may  order  a 
reassessment  or  a  correction  of  the  assessment,  if  it  find  that  such 
action  is  necessary.^  This  transfer  of  the  appeal  jurisdiction  from 
the  tax  commission,  an  expert  body,  to  a  court  of  justice,  usually 

^  Tax  Law  of  New  York,  §§  175,  176. 

One  loophole  has  been  left  through  which  the  local  authorities  may  yet  escape 
from  the  supervision  of  the  central  board  in  the  local  equalization.  The  legislature 
provided  in  1896  for  the  appointment,  by  the  boards  of  supervisors,  of  three  com- 
missioners of  equalization,  to  serve  for  three  years.  These  commissioners  were  to 
perform  the  regular  county  equalization  otherwise  devolving  upon  the  supervisors. 
Section  50  of  the  tax  law  apparently  does  not  apply  to  equalizations  so  performed, 
and  in  19 15  the  tax  commission  recommended  its  extension  to  include  their  work 
as  well  as  that  of  the  boards  of  supervisors.  Laws  of  New  York,  1896,  ch.  820;  Tax 
Law  of  New  York,  §§  51,  52;  New  York  State  Tax  Commission,  Report,  1915,  p.  27. 

^  Tax  Law  of  New  York,  §§  290-293. 


196  THE  STATE  TAX  COMMISSION 

far  from  skilled  in  the  details  of  local  assessment  and  equaliza- 
tion, affords  small  guarantee  of  the  correction  of  local  abuses. 
Any  taxpayer  in  the  state  should  be  free  to  present  his  case  to  the 
tax  commission  with  as  little  formality  as  possible  and  with  the 
assurance  that  his  plea  will  receive  the  attention  of  the  persons  in 
the  state  best  quaHfied  to  pass  upon  its  justice.  The  traditions 
of  local  self-government  are  still  too  deep-rooted  for  the  extension 
of  effective  central  administrative  powers,  such  as  the  right  of 
appointment  or  removal  of  the  local  assessors;  but  there  should 
be  much  greater  authority  for  interference  with  the  actions  of  the 
inefficient  or  corrupt  assessor  and  for  initiating  such  action  as 
will  promote  greater  justice  for  individuals  or  communities. 

The  presence  of  conservative  influences  is  evident  also  in  the 
section  of  the  act  of  1915  providing  for  reassessment  —  in  fact, 
they  have  largely  destroyed  the  value  of  reassessment  proceed- 
ings. Should  the  commission  decide  that  reassessment  is  neces- 
sary it  must  appeal  to  the  supreme  court  for  an  order  to  the 
assessor  to  show  cause  why  the  assessment  roll  should  not  be 
corrected.  All  authority  to  order  corrections  in  the  tax  roll,  or  a 
complete  reassessment,  rests  with  the  supreme  court  justice.  It  is 
safe  to  venture  the  conclusion  that  this  indirect  procedure  will 
greatly  diminish  the  significance  of  the  reassessment  in  correcting 
inequalities  in  local  assessments.  At  this  point  too,  therefore, 
the  New  York  law  still  fails  to  confer  effective  administrative 
authority. 

The  Administration  of  Corporation  Taxes 

The  corporation  taxes  levied  in  New  York  are  numerous  and 
complicated,  including,  in  addition  to  other  exactions,  an  organ- 
ization tax,  a  franchise  tax,  and  a  special  franchise  tax.^  The  last 
of  these  —  the  special  franchise  tax  —  has  been  the  only  tax 
directly  in  the  charge  of  the  tax  commission.  The  other  corpora- 
tion taxes  have  been  either  in  the  hands  of  the  state  comptroller 
or  of  the  local  officials.    The  act  of  191 5  transferred  all  of  the 

1  Cf.  the  criticisms  of  the  hodgepodge  of  corporation  taxes  by  various  speakers 
at  the  state  conferences  on  taxation.  Cf.  also  the  criticisms  in  the  Report  of  the 
Joint  Legislative  Committee,  1916,  pp.  73-143. 


TAX  COMMISSION  OF  NEW  YORK  1 97 

comptroller's  duties  in  the  assessment  and  levy  of  taxes  to  the 
tax  commission,  which  is  now  the  central  head  of  the  system  of 
corporate  taxation.  This  transfer  has  only  recently  been  made 
and  no  results  of  the  commission's  administration  are  available. 
The  following  account  will  therefore  be  confined  to  the  special 
franchise  tax. 

The  special  franchise  tax  was  the  outcome  of  a  series  of  efforts 
that  had  been  made  to  tax  adequately  the  public  service  corpora- 
tions which  made  use  of  the  streets,  public  highways,  and  public 
waters  of  the  state.  The  significance  of  the  term  is  seen  from  the 
explanation  of  its  meaning,  given  by  the  court  in  one  of  the  early 
cases.     The  court  said:  ^ 

When  a  right  of  way  over  a  public  street  is  granted  to  such  a  corporation 
with  leave  to  construct  and  operate  a  street  railroad  thereon,  the  privilege 
is  known  as  a  special  franchise,  or  the  right  to  do  something  in  the  public 
highway,  which  except  for  the  grant  would  be  a  trespass. 

The  resort  to  such  a  singular  method  of  taxing  public  service  cor- 
porations (for  the  courts  have  held  that  the  tax  applies  only  to 
public  uses  of  the  streets)  ^  was  the  direct  result  of  the  decision  of 
the  state  courts,  in  1898,  that  as  the  laws  stood  at  that  time  the 
money-earning  power  accruing  from  the  use  by  corporations  of 
streets,  parks,  and  other  public  places  was  not  taxable.'  To 
remedy  this  defect  the  legislature  passed  in  1899  the  so-called 
Ford  special  franchise  tax  law  as  a  means  of  reaching  this  source 
of  taxable  capacity.*  The  special  franchise  was  defined  to  be  real 
estate,  and  was  declared  to  include  the  value  of  the  tangible  prop- 
erty of  a  person,  copartnership  association  or  corporation  situ- 
ated in,  upon,  under  or  above  any  street,  highway,  public  place, 
or  public  waters  in  connection  with  the  special  franchise.^  The 
assessment  is  made  by  the  tax  commission,  but  the  results  are 
certified  back  to  the  tax  districts  for  taxation  at  the  local  rates. 
These  valuations  are  levied  upon  not  only  for  the  ordinary  state 
and  local  taxes,  but  also  for  any  special  district  taxes  levied  by 

"  174  New  York  Reports,  417. 

*  67  Misc.  Rep.  471. 

'  State  Board  of  Tax  Commissioners,  Report,  1900,  p.  17. 

*  Laws  of  New  York,  1899,  ch.  712. 

'  Tax  Law  of  New  York,  Art.  I,  §  2. 


198  THE  STATE  TAX  COMMISSION 

the  district  to  which  the  special  franchise  valuations  have  been 
certified.  The  chief  administrative  features  will  be  described 
briefly. 

Every  individual  or  association  subject  to  a  special  franchise 
tax  is  required  to  report  to  the  state  board  within  thirty  days 
after  such  franchise  has  been  acquired,  setting  forth  the  partic- 
ulars of  the  terms  on  which  the  grant  is  enjoyed.  The  commis- 
sion may  require  supplemental  reports  from  time  to  time  and 
shall  furnish  the  blanks  on  which  all  reports  are  made.  These 
reports  are  to  be  sworn  to  by  the  president  or  other  responsible 
ofi&cer.  Notice  of  the  valuation  shall  be  sent  to  the  party  con- 
cerned and  a  hearing  shall  be  granted,  if  desired.  After  having 
heard  complaints  and  made  the  changes  required  by  the  evidence 
presented,  the  commission  is  to  equalize  the  assessment  of  the 
special  franchise  to  the  same  percentage  of  full  value  as  that  at 
which  other  real  property  in  the  same  district  is  assessed.  This 
provision  was  added  in  191 1.^  The  equalized  valuation  is  certi- 
fied to  the  local  officials  by  whom  it  is  entered  upon  the  proper 
tax  rolls.  Any  assessment  of  a  special  franchise  may  be  appealed 
to  the  state  supreme  court  on  a  writ  of  certiorari  and  upon  a 
review  of  the  state  board's  assessment  the  court  is  empowered  to 
grant  such  relief  as  in  its  judgment  seems  necessary. 

The  law  has  been  weak  on  the  administrative  side  from  the 
beginning.  The  chief  defect  has  been  the  absence  of  a  provision 
requiring  the  prompt  pa5anent  of  the  assessed  taxes  as  a  condition 
precedent  to  certiorari  proceedings  for  the  review  of  the  assess- 
ment. Many  corporations  have  taken  advantage  of  the  delay 
caused  by  litigation  to  postpone  or  possibly  entirely  to  avoid  the 
payment  of  taxes.  It  appears  to  have  become,  by  1906,  "  the 
settled  belief  of  all  corporations  that  they  were  entitled  to  relief 
in  their  assessments,  as  a  matter  of  right,  in  all  cases  where  writs 
of  certiorari  were  taken  to  review  the  assessments  of  special 
franchises."  ^  The  delay  and  mischief  caused  by  judicial  review 
of  the  facts  and  equalization  of  the  assessment  may  be  shown  by 
the  unpaid  taxes.    From  1899  to  1907  taxes  remained  unpaid 

1  Laws  of  New  York,  1911,  ch.  804. 

2  State  Board  of  Tax  Commissioners,  Report,  1906,  p.  7. 


TAX  COMMISSION  OF  NEW  YORK  1 99 

upon  a  total  valuation  of  $1,443,282,693,  while  the  total  assess- 
ment of  special  franchises  in  the  same  period  had  been  $2,717,- 
948,454.  A  conservative  estimate  of  the  taxes  due  in  1907  placed 
them  at  $22,250,000,  of  which  $21,650,000  were  due  in  the  city  of 
New  York  alone.  In  this  year  there  remained  still  unpaid  the 
taxes  on  the  assessments  of  1900  against  twenty-two  parties,  the 
assessments  aggregating  $19,962,911.  For  each  succeeding  year 
since  1900  the  number  of  assessments  contested  and  the  amount 
of  taxes  unpaid  steadily  increased.^ 

One  cause  for  the  delay  has  been  in  the  fact  that  in  all  litigation 
the  state  board  has  had  no  power  to  employ  counsel,  though  re- 
quired to  defend  its  valuations.  The  cases  have  been  handled  by 
the  attorney-general,  who  has  often  designated  other  counsel  for 
the  purpose  without  consulting  the  state  board.  The  relations 
between  the  two  departments  appear  to  have  been  somewhat 
strained  at  times,-  and  the  absence  of  a  well-managed  and  syste- 
matic direction  of  the  litigation  has  unquestionably  contributed 
to  the  delay  of  settlements  and  the  payment  of  taxes  due.  Despite 
greater  efforts  to  dispose  of  cases  pending,  there  remained  unset- 
tled on  January  i,  1909,  cases  involving  valuations  aggregating 
over  $1,000,000,000.^ 

Another  factor  which  has  greatly  hindered  the  efficient  opera- 
tion of  the  law  has  been  the  practice  commonly  engaged  in  by  the 
corporations,  of  introducing  new  or  different  evidence  in  the 
judicial  hearings  from  that  on  which  the  state  board  based  its 
action.  For  instance,  in  the  Jamaica  Water  Supply  Case,"*  the 
company's  officials  had  made  a  sworn  return  to  the  state  board 
that  the  value  of  the  property  within  the  highways  was  nearly 
$1,000,000  and  of  that  without  the  highways  was  about  $71,000; 
but  in  the  certiorari  proceedings  the  same  official  who  had  signed 
the  former  statement  testified  that  the  values  were  $400,000  for 
the  property  in  the  streets  and  $300,000  for  that  outside.^   The 

*  State  Board  of  Tax  Commissioners,  Report,  1907,  pp.  5,  6. 

^  References  to  the  strained  situation  occur  frequently.    Cf.  ibid.,  1906,  p.  7; 
ibid.,  1908,  p.  5. 
'  Ibid.,  1909,  p.  5. 

*  196  New  York  Reports,  39. 

'  Cf.  State  Conference  on  Taxation,  191 2,  p.  180. 


200  THE  STATE  TAX  COMMISSION 

effect  of  this  practice  has  been  to  put  the  board  in  the  light  of  an 
unsuccessful  litigant  before  the  courts  and  so  to  discredit  the 
valuations  made  by  it.^  The  policy  of  judicial  review  of  the  com- 
mission's findings  of  fact  is  incongruous  and  the  case  referred  to 
illustrates  one  sort  of  abuse  which  is  thereby  made  possible.  The 
state  tax  commission  is  an  expert  body,  qualified  to  perform  the 
valuation  of  the  special  franchises;  the  courts  are  not  experts  in 
taxation  and  equalization  and  should  not  be  expected  to  pass 
beyond  the  bounds  of  their  peculiar  province.  The  main  purpose 
of  the  review  by  certiorari  was  formerly  to  secure  a  reduction  of 
the  assessment  to  the  same  basis  as  that  used  for  other  property 
in  the  district.  It  is  inexplicable  that  for  a  dozen  years  the  courts 
should  have  been  allowed  to  exercise  the  purely  administrative 
function  of  equalization  of  the  special  franchise  assessments ;  and 
the  whole  situation  emphasizes  anew  the  pressing  need  for  greater 
power  of  control  over  local  assessments,  in  order  to  know  more 
accurately  the  basis  of  local  valuation  as  well  as  to  secure  greater 
freedom  in  determining  the  proper  valuation  of  the  special  fran- 
chises. The  findings  of  the  tax  commission  should  be  reviewable 
by  itself  only,  with  such  right  of  appeal  to  the  courts  as  would 
safeguard  the  legal  rights  of  all  parties.^  The  amendment  of  191 1 
authorized  the  commission  to  equalize  the  assessments  to  the 
same  basis  of  full  value  as  that  used  for  other  property,  and  to 
collect  the  necessary  data  for  this  purpose.  This  amendment 
removed  at  once  the  incentive  for  many  of  the  appeals  for  review 
of  the  assessment  which  had  formerly  been  brought  and  the  num- 
ber of  appeals  has  greatly  diminished.  In  19 14  only  117  applica- 
tions for  review  were  filed.^  Satisfactory  progress  has  also  been 
made  recently  in  clearing  the  docket  of  the  older  appeal  cases. 
At  the  beginning  of  the  year  19 14  there  were  682  appeals  pending 
from  steam  railroads  alone.  By  a  series  of  compromise  proposi- 
tions settlements  were  effected  in  362  cases.  In  all,  some  642 
certiorari  proceedings  to  reduce  assessments,  involving  an  aggre- 
gate special  franchise  valuation  of  $190,927,259,  were  settled  in 

^  Recently  the  board  has  been  enforcing  more  strictly  the  penalties  provided  for 
unsatisfactory  reports.     Report,  19 13,  p.  13. 

2  The  board  has  long  urged  such  a  reform.     Report,  1902,  pp.  15,  16. 
'  State  Board  of  Tax  Commissioners,  Report,  1914,  p.  11. 


TAX  COMMISSION  OF  NEW  YORK  20I 

1914.^   There  were  326  cases  disposed  of  in  1915,  and  1284  cases 
still  pending  settlement. ^ 

In  the  earlier  years  of  special  franchise  taxation  the  state 
board  refused  to  make  public  its  rule  of  valuation,  contending 
that  it  had  no  hard  and  fast  rule  but  was  governed  by  the  condi- 
tions and  circumstances  of  each  individual  case.^  This  position 
has  been  consistently  held,  and  the  board  has  insisted  that  a 
number  of  factors  enter  into  the  determination  of  the  taxable 
value  of  a  special  franchise.*  Such  secrecy  of  procedure  was  char- 
acteristic of  the  earlier  practice  of  the  tax  commissions  in  general, 
and  it  presents  one  of  the  most  serious  problems  of  centralized 
administration  of  an  ad  valorem  tax.  Professor  Seligman's 
criticism  is  exceedingly  pertinent :  ^ 

And  what  is  worst  of  all,  the  secrecy  observed  by  the  State  Board  of 
Assessors  renders  it  utterly  impossible  for  either  the  victim  or  the  scientific 
observer  to  point  out  the  error  in  the  procedure.  Especially  true  is  this  in 
all  those  cases  where  it  has  become  customary  to  assess  the  value  of  the 
franchise  of  corporations.  .  .  . 

A  very  interesting  statement  of  the  factors  considered  in  the 
assessment  of  highway  crossings  was  made  by  one  member  of  the 
board  before  the  Utica  conference  on  taxation  in  191 1.  Because 
of  the  general  reticence  of  the  board  on  the  subject  it  will  be  of 
interest  to  quote  at  some  length  from  this  account:^ 

Two  elements  are  separately  considered  in  the  first  instance,  namely: 
The  value  of  the  intangible  right  or  privilege  to  cross  the  street,  and  the 
value  of  the  tangible  property  situated  in  such  street  and  used  in  connection 
with  such  right.  After  being  considered  as  separate  elements  they  are  united 
to  fix  the  value  of  such  crossing.  The  value  of  the  tangible  property  used 
in  connection  with  each  crossing  appears  upon  the  valuation  sheets  of  the 
Board,  and  the  difference  between  the  total  valuation  fixed  for  each  crossing, 
and  the  value  of  the  tangible  property  appearing  in  connection  therewith, 
represents  the  intangible  value  of  said  right  or  privilege  at  such  crossing. 

*  State  Board  of  Tax  Commissioners,  Report,  1914,  p.  12. 
"  Ibid.,  191S,  p.  7. 

'  Ibid.,  1900,  p.  20. 

*  The  board  refused  to  disclose  its  methods  in  Bryan  v.  Slate  Board  of  Tax 
Commissioners,  67  Misc.  Rep.  474;  also  in  Queens  Borough  Gas  and  Electric  Co.  v. 
Woodbury,  67  Misc.  Rep.  481. 

'  Proceedings  of  the  National  Tax  Conference,  1908,  p.  217. 

*  State  Conference  on  Taxation,  191 2,  pp.  182,  183. 


202  THE  STATE  TAX  COMMISSION 

In  arriving  at  the  intangible  value  the  Board  takes  into  account  the  popu- 
lation of  the  municipality  where  the  same  is  located,  as  shown  by  the  last 
State  enumeration;  the  character  of  the  crossing  itself  —  as  to  whether  the 
railroad  crosses  at  grade,  overhead  or  below  —  the  relative  importance  of 
the  street  with  reference  to  its  use  by  the  public  at  the  place  of  crossing,  the 
amount  of  traffic  thereover  by  the  raUroad,  and  the  resulting  interference 
with  the  use  of  the  street  by  the  public;  the  character  of  the  trackage, 
whether  by  through  train  service  or  for  switching  purposes;  the  extent  of 
occupancy;  the  land  values  in  the  locality  in  which  the  crossing  is  located; 
the  general  financi,al  condition  of  the  company  as  bearing  upon  the  question 
as  to  whether  the  railroad  is  a  paying  venture  or  otherwise,  and  the  general 
information  of  the  members  of  the  Board  as  to  prices  paid  to  the  various 
municipalities  for  similar  occupancies.  The  Board  fixes  the  value  of  the 
right  to  cross  these  streets  according  to  its  best  judgment  in  the  light  of  all 
the  surrounding  circumstances  and  conditions. 

By  the  use  of  application  tables  each  crossing  is  fitted  into  its  proper  class 
and  a  uniformity  of  grading  and  valuation  is  established  throughout  the 
state. 

Other  factors  which  are  sometimes  used  as  guides  to  value  are 
the  prices  paid  by  corporations  to  municipalities  for  franchise 
privileges;  ^  and,  for  the  value  of  the  tangible  property,  the  fee 
value  of  the  land  occupied.  In  New  York  City  street  railroad 
companies  pay,  under  the  railroad  law,  3  per  cent  of  their  gross 
earnings  for  the  first  five  years  and  5  per  cent  thereafter,  and  are 
apparently  willing  and  anxious  to  receive  grants  on  this  basis. 
These  considerations  are  rightfully  regarded  as  significant  evi- 
dence of  the  value  of  the  franchise.  The  fact  that  for  the  part  of 
the  property  which  is  outside  the  street  a  big  investment  in  land 
is  necessary,  while  for  that  placed  in  the  street  no  such  outlay  is 
required,  suggests  that  an  addition  be  made  in  the  latter  case  of 
at  least  the  fee  value  of  the  land  occupied.  The  board  regards 
the  net  earnings  rule  as  a  valuable  test,  ''  but  more  often  than 
otherwise  deceptive  and  unreliable  as  a  fixed  standard  of  ascer- 
taining value  when  practically  the  only  information  is  to  be 
obtained  from  corporate  reports  made  to  this  Board."  -  The 
speaker  quoted  at  length  above  emphasizes  the  difficulty  of 
maintaining  the  close  supervision  of  the  business  and  accounts  of 

^  Cf.  the  critical  discussion  of  the  whole  problem  of  corporate  assessment  in 
State  Board  of  Tax  Commissioners,  Report,  1909,  pp.  5-18. 

*  Ibid.,  p.  7;  also,  ibid.,  1913,  p.  14.  The  board  again  states  that  it  has  no  gen- 
eral rule. 


TAX  COMMISSION  OF  NEW  YORK  203 

the  corporations  which  the  net  earnings  rule  would  involve.  He 
further  insists  that  this  rule  permits  no  discrimination  between 
the  various  kinds  of  street  occupancies.  The  four  track  railroad, 
almost  completely  obstructing  the  highway,  and  the  lone  wire  of  a 
telephone  company  placed  in  an  underground  conduit,  are  treated 
exactly  alike.  The  former  is  a  virtual  monopoly,  while  there  may 
be  many  mains  of  competing  telephone,  gas,  water,  or  electric 
companies. 

Notwithstanding  the  board's  objections  to  the  net  earnings 
rule,  the  trend  of  judicial  thought  appears  to  favor  that  method  of 
valuation.^  While  the  courts  recognize  the  possibility  of  other 
methods  than  the  capitalization  of  net  earnings,  the  variance  in 
the  point  of  view  between  them  and  the  tax  commission  as  to  the 
more  desirable  methods  of  valuation  emphasizes  strongly  the 
need  of  more  complete  centralization  of  the  administrative  fea- 
tures of  the  tax  into  the  hands  of  the  latter  and  the  elimination 
of  the  judicial  review.  Under  the  amendment  of  191 1  there  has 
been  much  less  resort  to  the  courts,  though  as  the  system  stands 
the  latter  still  possess  unlimited  powers  of  review  which  will 
continue  to  be  invoked  as  freely  as  ever  by  those  interests  which 
are  bent  on  thwarting  the  efforts  of  the  tax  commission,  if  there 
be  any  possibility  of  advantage  from  the  process. 

The  new  state  tax  department  found,  in  1915,  that  the  work  of 
special  franchise  assessment  was  "  in  a  deplorable  condition." 
The  lack  of  coordination  of  the  assessment  of  different  classes  of 
corporations  had  led  to  inconsistent  and  contradictory  apphca- 
tions  of  the  law,  to  unscientific  valuations  and  unjustifiable 
cancellation  of  millions  of  dollars  of  special  franchise  assessments. 
The  entire  special  franchise  bureau  is  now  in  charge  of  a  deputy 
tax  commissioner,  under  whom  three  divisions  have  been  organ- 
ized, for  water,  gas,  and  electric  companies;  telephone  and  tele- 
graph companies;  and  steam  railroads.  The  commission  stated 
in  19 1 5  that  the  new  bureau  had  developed  a  new  method  for 
valuing  railroad  occupancies  and  street  crossings.  This  method  is 
not  described  in  detail,  but  the  essential  feature  seems  to  be  the 
railroad's  use  of  the  crossing  or  occupation  to  the  exclusion  of  the 
*  Board  of  State  Tax  Commissioners,  Report,  iqoq,  p.  5. 


204  THE  STATE  TAX  COMMISSION 

public,  as  against  the  factor  of  public  use  of  the  highway,  now- 
said  to  have  been  an  important  element  in  the  older  method.^ 

The  main  facts  regarding  special  franchise  assessments  for 
certain  years  are  here  presented :  ^ 

Special  Franchise  Assessments,  Selected  Years,  1900-13 

Aggregate  Number  of  separate     Number  of  corporate 

Year  assessment  assessments  assessments 

1900 $266.2  millions  4,75i  1.376 

1903 284.8   "  4,506  1,408 

1907 555-3   "  6,395  1,830 

1911 614.8   "  7,684  2,494 

1913 640.1    "  7,341  2,020 

In  1899  the  total  assessment  of  tangible  property  in  public  places 
by  the  local  assessors  was  $196,061,902.  It  is  evident  from  the 
marked  increase  that  a  considerable  amount  of  taxable  capacity 
was  escaping  taxation.  The  figures  declined  in  190 1  because  of  the 
exemption  of  all  street  crossings  less  than  250  feet  in  length.^  The 
board  had  advised  this  exemption  because  of  the  expense  of 
making  the  assessments;  ^  but  it  was  later  found  that  the  greater 
part  of  the  values  so  exempted  were  in  the  populous  centers  where 
the  loss  in  revenue  was  serious,  and  in  1907  the  exemption  was 
amended  to  apply  only  to  crossings  outside  of  cities  and  villages.^ 
In  1909  the  aggregate  valuations  were  reduced  by  the  cancellation, 
in  judicial  review,  of  an  assessment  of  more  than  $24,000,000 
against  the  Interborough  Rapid  Transit  Company.  It  is  of  some 
significance  that  less  than  one-third  of  the  assessments,  on  the 
average,  are  made  against  corporations.  Some  weight  is  given,  by 
this  fact,  to  the  board's  objections  against  attaching  large  impor- 
tance to  the  stock  and  bond  rule  of  valuation.  Such  a  rule  would 
of  course  apply  only  to  those  special  franchises  held  by  corpora- 
tions; but  the  proportion  of  the  total  valuation  assessed  against 
corporations  is  undoubtedly  far  greater  than  the  relative  numbers 
of  corporate  and  individual  assessments  would  indicate. 

*  State  Tax  Commission,  Report,  1915,  pp.  17,  18. 

^  From  the  Reports  of  the  Board  of  Tax  Commissioners. 
'  Laws  of  New  York,  1901,  ch.  490. 

*  State  Board  of  Tax  Commissioners,  Report,  1900,  pp.  20,  21. 

^  Laws  of  New  York,  1907,  ch.  720.     This  amendment  was  recommended  by 
the  board  in  its  Report  for  1906,  pp.  8,  9. 


TAX  COMMISSION  OF  NEW  YORK  205 

It  is,  of  course,  apparent  that  this  system  of  taxing  public 
utility  corporations  is  fundamentally  defective,  dividing  as  it 
does  the  property  of  these  companies  between  two  taxing  authori- 
ties. The  tax  commission  assesses  all  of  the  property  located  in, 
upon,  under,  or  above  the  streets  and  other  public  places,  except 
crossings  250  feet  in  length  and  located  outside  of  cities  and  vil- 
lages. The  remainder  of  the  property,  which  includes  all  of  the 
plant  located  on  private  right  of  way,  is  assessed  by  the  local 
assessors  of  the  districts  where  the  same  is  located.  The  absurd- 
ity of  such  a  policy  of  assessment,  as  applied  especially  to  the 
railroads,  was  denounced  in  scathing  terms  by  a  speaker  at  the 
Utica  tax  conference  in  191 1.  After  characterizing  the  existing 
system  of  corporation  laws  as  a  "  mere  matter  of  patchwork  and 
makeshift,"  he  said:  ^ 

To  this  chaotic  mass  (of  corporation  taxes)  the  inspired  genius  of  our  lion- 
hunters  and  law-givers  added  the  marvelous  Special  Franchise  Tax  Law 
with  its  developments  gravely  separating  the  crossings  of  city  streets  and 
village  highways  from  other  railroad  property  and  seriously  engaging  there- 
with the  grave  deliberations  of  a  State  Board  of  experts  upon  the  apparent 
theory  that  while  the  valuation  of  milhons  of  doUars  of  railroad  property 
outside  the  streets  was  wholly  within  the  capacity  of  the  average  country 
assessor,  the  moment  the  railroad  crossed  a  village  highway  or  city  street, 
it  became  imbued  with  certain  extraordinary  qualities  and  problems  which 
were  far  beyond  the  abUities  of  the  minds  that  were  called  upon  to  value 
other  railroad  properties  and  cried  aloud  to  Albany  for  solution. 

The  board  has  not  been  insensible  of  this  defect  in  the  system 
and  it  has  frequently  called  attention  to  its  absurdity,  especially 
as  applied  to  the  railroads;^  but  it  has  not  pressed  for  the  most 
practical  remedy,  however,  which  would  be  to  place  the  assess- 
ment of  the  whole  property  of  these  corporations  in  the  hands  of 
the  state  board.  Instead,  it  has  suggested  the  impractical  plan 
of  requiring  the  county  supervisors  to  employ  experts  to  perform 
periodical  valuations  of  the  railroad  property.  These  valuations 
would  not  be  binding  upon  the  local  assessors  but  would  be  avail- 
able for  them  as  a  guide  to  the  actual  determination  of  the  proper 
assessment.'  Any  plan  which  left  to  the  local  assessors  the  piece- 

'  Stale  Conference  on  Taxation,  191 2,  p.  189. 

2  State  Board  of  Tax  Commissioners,  Report,  1904,  pp.  11-14;  ibid.,  1907,  p.  14; 
ibid.,  1908,  pp.  10,  11;  ibid.,  191 1,  p.  10. 
^  Ibid.,  1908,  pp.  10,  II. 


206  THE  STATE  TAX  COMMISSION 

meal  valuation  of  the  railroads  of  New  York  state  would  be 
utterly  worthless,  and  in  so  far,  this  one  must  be  condemned.  A 
scientific  valuation  of  the  whole  property  of  the  railroads,  con- 
sidered as  profit-producing  plants,  would  be  of  far  greater  value. 
No  sort  of  valuation  which  seeks  to  parcel  out  in  two  portions  a 
really  indivisible  whole  can  be  regarded  as  successful;  and  any 
thorough  reform  of  the  system  now  in  vogue  in  New  York  must 
involve  the  abandonment  of  the  artificial  distinctions  set  up  by 
the  system  of  special  franchise  taxation.^ 

Administration  of  the  Mortgage  Registry  Tax 

The  question  of  mortgage  taxation  has  been  one  of  the  most 
perplexing  of  the  tax  problems  that  have  engaged  the  attention  of 
administrators  and  students  in  the  United  States  during  the  last 
half  century.  A  bUnd  resistance  to  all  proposals  for  exemption 
has  been  inspired  by  a  stubborn  faith  in  "  equality  of  taxation," 
strengthened  by  a  conviction  that  exemption  would  favor  the 
rich  money-lending  class;  on  the  other  hand,  the  ease  of  evasion 
has  usually  afforded  practical  exemption,  while  the  risk  of  assess- 
ment has  offered  opportunity  and  incentive  for  increasing  the 
interest  paid  by  the  borrower  to  whom  the  higher  rate  of  interest 
has  been  evidence  of  oppression  by  the  money-lender.^  In  this 
conflict  the  borrowing  class  has  inevitably  come  out  loser,  both 
from  a  higher  rate  of  interest  on  its  loans  and  from  a  higher  rate 
of  taxation  on  other  property  brought  about  through  the  evasion 
of  money  loaned  on  mortgages. 

The  futility  of  attempting  to  reach  mortgages  under  the  general 
property  tax  was  early  perceived  in  New  York.  The  New  York 
tax  commission  of  1862-63  reported  a  law  providing  "  that  the 
net  value  only  of  every  person's  taxable  estate,  whether  invested 

^  In  19 1 1  the  board  recommended  that  its  skilled  staff  be  given  the  duty  of 
valuing  the  entire  main  stem  of  the  railroads.    Report,  191 1,  p.  10. 

^  The  incidence  of  a  tax  on  mortgages  has  been  investigated  by  many  writers. 
Seligman,  The  Shifting  and  Incidence  of  Taxation,  pp.  333-337,  states  the  general 
theory.  Cf.  also  Plehn,  "  Taxation  of  Mortgages  in  Cahfornia,"  Yale  Review, 
viii,  pp.  31-67;  Report  of  the  Commission  on  Taxation  of  Massachusetts,  1897,  pp.  36- 
40;  T.  S.  Adams,  "  Mortgage  Statistics  and  Taxation  in  Wisconsin  and  Neighbor- 
ing States,"  in  Wisconsin  Tax  Commission,  Report,  1907,  Appendix  B. 


TAX  COMMISSION  OF  NEW  YORK  207 

in  land  or  in  any  other  species  of  property,"  should  be  taxed;  and 
that  in  taxing  mortgaged  real  estate,  the  tax  should  be  propor- 
tionably  assessed  upon  the  land  and  the  possessor  of  the  mort- 
gage, and  that  the  mortgage  should  not  be  otherwise  taxed. ^  In 
1870  the  Chamber  of  Commerce  of  New  York  petitioned  the 
legislature  to  exempt  mortgages  from  all  taxation  and  framed  a 
bill  for  that  purpose,  but  it  failed  of  consideration. ^  The  special 
tax  commission  of  187 1  recommended  the  complete  exemption  of 
mortgages  on  the  ground  of  expediency,  since  such  a  policy  had 
been  adopted  by  Pennsylvania  and  New  Jersey  and  capital  was 
being  diverted  from  the  state.^  In  the  second  report  of  this  noted 
commission,  published  in  1872,  mortgage  exemption  was  again 
advocated,  this  time  in  connection  with  the  revival  of  the  diffusion 
theory  of  incidence.* 

The  suggestions  of  the  commission  of  187 1  failed  to  make  any 
impression  upon  legislative  opinion  in  New  York,  though  its  re- 
ports were  widely  circulated  at  home  and  abroad,  and,  as  its  chair- 
man elsewhere  remarked,  became  "the  incipient  agency  in  creating 
a  permanent  public  interest  in  the  principles  it  discussed."  ^  No 
change  was  made  in  the  method  of  taxing  mortgages  and  the 
subject  became  quiescent  until  1900,  the  recommendation  of 
the  commission  of  1892  for  a  tax  of  \  per  cent  on  all  real 
estate  mortgages  amounting  to  $200  having  awakened  no  stir 
of  interest  in  the  question.^  In  1900  the  Joint  Committee  on 
Taxation  renewed  the  proposal  for  a  tax  of  \  per  cent  on  mort- 
gages, the  revenue  to  be  used  for  state  purposes.^  This  suggestion 
for  the  special  taxation  of  mortgages,  it  should  be  noted,  was  not 
the  fruit  of  the  committee's  consideration  of  theories  of  incidence 
or  of  double  taxation;  it  was  rather  the  outcome  of  the  long 
struggle  between  the  rural  and  the  urban  interests  over  the  state 
equalization,  which  the  committee  declared   to  be  "  the  most 

'  Quoted  in  the  Report  of  the  New  York  Special  Tax  Commission,  1871,  p.  72. 

2  Cf.  ibid.,  pp.  76,  77,  and  note. 

^  Ibid.,  pp.  76-79. 

*  Ibid.,  1872,  p.  49. 

^  D.  A.  Wells,  "  Reform  of  Local  Taxation,"  North  American  Review,  i876,p.357. 

^  Report  of  the  Joint  Committee  on  Taxation,  1893,  p.  12. 

'  Ibid.,  1900,  p.  8. 


2o8  TEE  STATE  TAX  COMMISSION 

deep-seated  and  ancient  grievance  in  our  system  of  taxation." 
The  special  tax  on  mortgages  was  advanced  as  one  of  the  sources 
of  revenue  by  the  aid  of  which  the  state  might  dispense  with  the 
direct  tax  and  so  reheve  the  bitterness  of  the  ancient  feud.  This 
bill  failed  to  pass/  but  interest  in  the  subject  had  again  been 
aroused  and  one  or  more  bills  were  introduced  in  each  session  of 
the  legislature  until  1905,  when  an  annual  tax  of  |  per  cent  en- 
acted.^  This  act  remained  in  force  for  one  year  only  and  in  1906 
it  gave  way  to  the  present  mortgage  registry  tax  law,  whereby  a 
recording  tax  of  fifty  cents  per  $100  or  major  portion  thereof  was 
to  be  paid  at  the  time  of  recording  the  mortgage.^  The  tax  was  to 
apply  to  all  mortgages  recorded  after  the  law  went  into  effect, 
and  was  in  lieu  of  all  other  taxes  except : 

1.  Upon  mortgages  held  by  state  or  national  banks,  the  value  of  which 
entered  into  the  value  of  their  capital  stock; 

2.  Upon  mortgages  held  by  insurance  companies  as  a  part  of  the  gross 
premiums;   or  by  trust  companies  and  savings  banks; 

3.  The  inheritance  tax. 

The  receipts  from  the  tax  were  to  be  divided  equally  between  the 
state  and  the  district  in  which  the  mortgaged  property  was 
located.  The  act  of  1905  had  allowed  old  mortgages  to  be  listed 
and  taxed  at  the  low  rate  of  |  per  cent.  The  law  of  1906  excluded 
old  mortgages  and  made  them  subject  again  to  the  local  assess- 
ment. Much  complaint  was  aroused  by  this  provision.  Many 
mortgages  had  been  Usted  under  the  implied  promise  of  lower 
taxation,  which  was  now  suddenly  withdrawn,  leaving  the 
recorded  mortgages  antedating  1906  to  the  tender  mercies  of  the 
local  tax  rate.   This  anomaly  was  removed  in  1907.* 

The  administration  of  the  tax  is  largely  in  the  hands  of  the 
local  officials,  over  whom  supervision  is  maintained  by  the  tax 
commission.  For  this  purpose  a  mortgage  tax  bureau  has  been 
established.  The  agents  of  the  latter  inspect  the  local  records  and 
check  the  recorder's  calculations  of  taxes  due  and  his  accounts  of 
the  disposition  of  the  funds.    The  chief  duty  which  the  board 

1  The  arguments  are  reviewed  by  Seligman,  "  Mortgage  Taxation  in  New 
York,"  Pol.  Sci.  Quart.,  xv,  pp.  640  ff. 

2  Laws  of  New  York,  1905,  ch.  729.  '  Ibid.,  1906,  ch.  532. 

*  Ibid.,  1907,  ch.  340.    Board  of  Tax  Commissioners,  Report,  1906,  pp.  11,  12.. 


TAX  COMMISSION  OF  NEW  YORK  209 

itself  performs  is  that  of  apportioning  the  mortgages  upon  prop- 
erty which  lies  within  and  without  the  state,  the  tax  being  pay- 
able, of  course,  only  upon  the  proportion  of  the  property  which  is 
within  the  state.  Considerable  difficulty  was  encountered  at  first 
in  valuing  these  properties,  which  included  "  real  estate,  special 
franchises,  tangible  personal  property,  rents,  choses  in  action, 
and  in  fact,  every  species  of  property,  tangible  and  intangible, 
covered  by  the  mortgage."  ^  No  adequate  authority  was  pro- 
vided for  the  collection  of  information  pertinent  to  the  valuation 
of  interstate  properties  and  the  board  was  confined  to  the  con- 
tents of  a  meager  statement  filed  by  the  mortgagor.  The  task  of 
equitable  apportionment  has  been  materially  lightened  by 
restricting  the  term  "  property  "  to  tangible  property  covered  by 
the  mortgage  and  by  authorizing  the  state  board  to  call  witnesses 
and  require  the  production  of  books  and  other  information  relat- 
ing to  the  property.  2  In  a  like  manner  the  board  apportions  the 
valuation  of  mortgages  covering  property  in  more  than  one  tax 
district  or  county.  If  the  assessed  valuation  is  available  for  the 
tracts  in  question,  the  apportionment  becomes  merely  clerical; 
but  if  this  assessed  valuation  cannot  be  determined  or  ascertained, 
the  tax  commission  is  authorized  to  make  an  assessment,  which  is 
valid,  however,  only  for  the  purposes  of  the  apportionment. 

The  work  of  the  state  board  of  tax  commissioners  seems  to  have 
slackened  here  as  at  numerous  other  points  as  the  date  for  its 
dissolution  drew  near.  The  new  tax  commission  found,  on  assum- 
ing ofiice  in  191 5,  seventeen  interstate  mortgages,  involving  an 
aggregate  indebtedness  of  $149,999,900  and  a  tax  of  $131,540, 
concerning  which  no  action  had  been  taken  for  more  than  a  year. 
Twelve  of  these  cases  were  disposed  of  within  the  year  and  $125,- 
596  in  taxes  were  distributed  to  the  proper  jurisdictions.  More 
than  200  cases  in  intra-state  mortgages  covering  property  in 
more  than  one  district  were  also  pending.  All  of  these  were 
promptly  settled.^ 

The  mortgage  registry  tax  has  become  a  productive  source  of 
revenue  to  the  state  and  it  has  unquestionably  lessened  the  eva- 

'  State  Board  of  Tax  Commissioners,  Report,  1906,  p.  14. 

^  Laws  of  New  York,  1907,  ch.  340. 

'  State  Tax  Commission,  Report,  1915,  pp.  19,  20. 


2IO  THE  STATE  TAX  COMMISSION 

sion  of  this  class  of  property  rights,  while  it  has  materially  in- 
creased its  contribution  to  the  common  burdens.  The  experience 
under  the  law  has  not  been  wholly  satisfactory  and  serious  com- 
plaints have  arisen  from  the  rural  districts.  The  chief  basis  for 
criticism  has  been  the  alleged  loss  of  revenue  as  compared  with 
the  former  system.^  Mortgages,  it  has  been  asserted,  had  been 
an  important  factor  in  the  personal  property  assessments,  and 
one-half  of  the  registry  tax  has  not  balanced  the  receipts  from 
such  mortgages  as  were  listed  under  the  former  system.  No  evi- 
dence exists  to  substantiate  the  argument  of  these  rural  communi- 
ties but  it  is  unlikely  that  mortgages  ever  had  been,  or  ever  would 
be,  a  significant  element  in  either  rural  or  urban  assessments. 
Further,  the  distribution  of  receipts  according  to  the  location  of 
the  property,  instead  of  according  to  the  residence  of  the  owner, 
had  occasioned  some  shifting  of  the  benefits  derived  from  the 
tax.  To  some  extent,  this  method  of  distribution  should  lessen 
the  real  force  of  the  above  objection,  since  the  receipts  from  the 
tax  on  farm  mortgages  would  go  to  the  rural  districts  instead  of 
to  the  cities,  where  the  lenders,  as  a  class,  would  be  found.  It  was 
argued,  in  favor  of  the  tax,  that  the  lower  rate  would  enable  the 
farmer  to  borrow  at  lower  rates  of  interest;  but  the  evidence  has 
showed  that  the  savings  banks  and  trust  companies  have  loaned 
very  little  money  on  the  security  of  farm  property,  the  owners  of 
which  have,  in  consequence,  been  compelled  to  borrow  of  individ- 
ual lenders  to  whom  they  have  paid  the  full  market  rate.  The 
board  reached  the  conclusion  that  in  so  far  as  the  lower  tax  rate 
has  resulted  in  a  lower  interest  rate  on  mortgages,  the  benefits 
have  been  enjoyed  by  the  large,  rather  than  the  small  borrowers.'^ 
Finally,  the  flat  rate  of  tax  regardless  of  the  lifetime  of  the  mort- 
gage has  meant  inequality  of  burden  within  this  class  of  property, 
being  a  gross  discrimination  in  favor  of  the  long-term  corporate 
mortgage.  The  board  has  recommended  that  the  exemption  be 
allowed  for  five  years,  with  payment  of  the  tax  at  the  expiration 
of  each  quinquennial  period.^ 

The  gross  receipts  from  the  mortgage  tax  have  declined  con- 

^  State  Board  of  Tax  Commissioners,  Report,  1908,  p.  25;  ibid.,  igio,  pp.  10,  11. 
iJhid.,^.  11.  ^  Ibid. 


TAX  COMMISSION  OF  NEW  YORK  211 

siderably  in  recent  years  and  the  cost  of  collection  has  advanced. 
The  figures  for  the  years  1 913-15  are  given:  ^ 

Cost  of  collection 
Year  Gross  receipts  %  of  receipts 

1913 $3,728,544  1.67 

1914 3,255,172  2.10 

1915 3,206,496  2.41 

The  cost  of  collection  has  been  enhanced  by  the  improper  allow- 
ances which  the  commission  discovered  had  been  made  in  nu- 
merous instances  by  the  former  tax  department.  On  the  other 
hand,  the  audits  which  had  been  made  of  the  mortgage  tax  records 
in  the  counties  had  been  quite  unreliable  and  a  stricter  examina- 
tion of  these  records  has  been  disclosing  serious  shortages  in  the 
return  of  tax  receipts  by  the  county  clerks.  The  commission  now 
has  eight  examiners  at  the  work  of  inspecting  the  local  records.^ 

Recommendations 

Many  of  the  more  important  of  the  commission's  recommenda- 
tions have  been  re\dewed  in  the  appropriate  connection.  The 
legislature  has  apparently  been  giving  greater  consideration  to 
its  suggestions  in  recent  years  and  the  latest  revision  of  the  tax 
laws  will  place  the  tax  commission  in  a  position  to  exercise  even 
greater  influence  in  the  direction  of  future  tax  legislation.  For 
the  presentation  of  its  view  and  the  elaboration  of  arguments 
designed  to  reach  the  people  of  the  state  at  large  the  annual 
reports  present  an  opportunity  of  which  full  advantage  has  not 
always  been  taken  by  the  commission.  The  quahty  of  its  dis- 
cussion has  varied  greatly  from  year  to  year  and  many  of  the 
reports  have  been  almost  entirely  lacking  in  this  important 
feature.  In  191 2  the  annual  report  was  supplemented  by  a 
pamphlet  of  instructions  and  explanations.  The  advance  copy  of 
the  report  for  19 15  contains  an  excellent,  though  brief,  account 
of  the  reorganization  effected  under  the  new  law,  with  some 
account  of  former  conditions  and  of  new  methods  of  adminis- 
tration being  developed.  The  new  commission  recommends  a 
comprehensive  revision  of  the  entire  tax  law  and  especially  of  its 
administrative  features. 

^  From  the  annual  reports  of  the  ta.x  commission. 
'  State  Tax  Commission,  Report,  1915,  pp.  20,  21. 


212 


THE  STATE  TAX  COMMISSION 


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TAX  COMMISSION  OF  NEW  YORK 

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CHAPTER  VII 

THE  STATE  TAX  COMMISSIONER  OF  MASSACHUSETTS 

The  evolution  of  centralized  tax  administration  began  very  early 
in  Massachusetts,  but  so  slow  has  been  the  advance  that  today 
many  states  have  surpassed  her  in  the  degree  of  state  control 
attained  over  local  assessments.  The  first  stage  of  administrative 
centralization  is  to  be  traced  to  the  latter  seventeenth  century,  in 
the  equahzation  of  assessments  by  a  committee  of  the  General 
Court. ^  The  purpose  of  these  equahzations  was  to  counteract  the 
competitive  undervaluation  which,  even  at  that  early  date,  was 
beginning  to  characterize  the  general  property  tax.  Real  prop- 
erty was  revalued  and  equalized  at  irregular  intervals  until  1781 
when  the  constitution  ordained  that  the  period  between  revalua- 
tions should  not  exceed  ten  years. ^  Reappraisals  were  actually 
made  more  frequently  than  once  in  ten  years,^  but  equalization 
of  these  successive  appraisals  remained  in  the  charge  of  the  legis- 
lative committee  until  187 1  when  the  function  was  transferred  to 
the  new  state  tax  department.* 

The  second  stage  in  the  evolution  of  state  administration  was 
reached  in  connection  with  the  taxes  imposed  on  corporations 
during  the  Civil  War.  Various  attempts  at  corporate  taxation 
had  been  made  before  this  time;  but  in  the  earHer  experiments 
there  had  been  no  provision  for  special  administrative  machinery. 
The  withdrawal  of  Massachusetts  banks  from  the  state  to  the 
national  system  caused  a  rapid  decrease  in  the  revenue  derived 
from  bank  taxes,  and  the  effort  to  replace  this  revenue  without 
increasing  heavily  the  direct  state  tax  gave  rise  to  the  first  general 
corporation  tax  in  the  United  States.   An  essential  feature  of  the 

1  Cf.  Bullock,  The  Finances  of  Massachusetts,  p.  12.  Professor  Bullock  has  pub- 
lished a  thorough  review  of  the  historical  development  of  the  tax  system  in  Massa- 
chusetts in  the  Quart.  Jour.  Econ.,  xxxi,  pp.  1-61.  Nov.  1916.  "The  Taxation 
of  Property  and  Income  in  Massachusetts." 

^  Constitution  of  Massachusetts,  1781,  ch.  i,  art.  4,  §  i. 

^  Bullock,  op.  cit.,  p.  14.  *  Laws  of  Massacktisetts,  1871,  ch.  125. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  21  5 

new  tax  was  central  administration  of  the  tax  on  the  "  corporate 
excess,"  for  the  purpose  of  which  the  office  of  state  tax  commis- 
sioner was  created.^  For  the  first  year  the  treasurer  and  auditor 
of  state  both  served  as  tax  commissioners  but  in  1865  the  former 
was  made  tax  commissioner  ex  officio,  with  authority  to  appoint  a 
deputy  by  whom  the  actual  work  of  the  department  was  to  be 
performed.^  The  special  tax  commission  of  1875  recommended 
the  legal  recognition  of  this  fact  by  the  establishment  of  an  inde- 
pendent tax  department  ^  but  such  action  was  delayed  until 
1890.''  The  act  which  accomplished  this  independence  for  the  tax 
commissioner  imposed  upon  him  the  duty  of  acting  as  commis- 
sioner of  corporations;  but  inasmuch  as  this  work  has  been 
entirely  separate  from  the  functions  relating  to  taxation,  no 
account  will  here  be  offered  of  his  duties  in  this  connection. 

The  gradually  expanding  scope  of  the  system  of  corporation 
taxes  and  the  burden  of  the  triennial  equalization  of  property 
assessments  increased  the  work  of  the  department  and  necessi- 
tated the  establishment  of  the  office  of  deputy  tax  commissioner 
in  1898/  With  this  enlargement  Massachusetts  entered  the  field 
of  supervision  of  local  assessments,  though  the  authority  pro- 
vided was  purely  advisory  in  character.^  The  growing  need  of 
more  effective  supervisory  control  over  the  local  assessment  of 
property  led  in  1908  to  the  establishment  of  three  supervisors 
of  assessments  who  were  to  act  as  agents  of  the  tax  commissioner 
in  maintaining  more  direct  and  continuous  relations  with  the  local 
officials.^  In  the  same  act  the  organization  of  the  tax  department 
was  further  broadened  by  providing  three  assistants  to  the  com- 
missioner. The  latter  was  to  appoint  his  assistants  with  the 
advice  and  consent  of  the  governor  and  council.  The  duties  of 
the  tax  department  have  been  expanded  from  time  to  time  also 
by  an  extension  of  the  corporation  taxes  administered  by  it,  by 
the  assumption  in  1907  of  the  administration  of  the  inheritance 

1  Laws  of  Massachusetts,  1864,  ch.  208.  ^  Ibid.,  1865,  ch.  283. 

'  Report  of  the  Commission  on  Taxation,  1875,  p.  82. 

*  Laws  of  Massachusetts,  1890,  ch.  160. 
6  Ibid.,  1898,  ch.  507. 

*  Massachusetts  Tax  Commissioner,  Report,  1899,  p.  13. 
^  Laws  of  Massachusetts,  1908,  ch.  550. 


2l6  THE  STATE  TAX  COMMISSION 

tax/  and  by  the  enactment  in  191 6  of  a  tax  on  incomes. ^  Each  of 
these  functions  of  the  Massachusetts  tax  department  will  now  be 
considered  in  detail. 

The  Administration  of  the  Corporation  Taxes 

The  framework  of  the  Massachusetts  corporation  tax  had  been 
developed  before  the  Civil  War.^  This  system  was  in  reality 
simply  an  application  of  the  general  property  tax  to  various 
classes  of  corporations.  Domestic  manufacturing  corporations 
were  taxed  locally  on  their  real  estate  and  machinery,  while  their 
shares  were  taxed  in  the  hands  of  their  owners.  Double  taxation 
was  avoided  by  the  provision  that  due  allowance  was  to  be  made 
in  assessing  the  stocks  for  the  taxable  valuation  of  the  real  estate 
and  machinery.  As  Professor  Bullock  points  out,  this  not  only 
prevented  double  taxation;  it  undoubtedly  insured  partial  taxa- 
tion because  of  the  ineffectiveness  of  the  local  assessment  of  the 
stocks  to  their  owners.*  The  chief  significance  of  the  law  of  1864, 
therefore,  was  the  administrative  change  whereby  the  assessment 
of  the  stocks,  and  the  allowance  of  the  proper  deductions  on 
account  of  the  tangible  property  locally  taxable,  were  placed  in 
charge  of  a  new  state  tax  department.  Other  significant  changes 
were  the  collection  of  this  tax  on  the  corporate  excess  from  the 
companies  themselves,  the  exemption  of  the  shares  of  stock  in  the 
hands  of  their  owners,  and  the  taxation  of  the  corporate  excess  at 
the  average  rate  on  property  throughout  the  state. 

The  principal  administrative  features  of  the  law  may  be  briefly 
described.  The  first  step  is  the  calculation  of  the  value  of  the  out- 
standing shares  of  stock.  To  this  end  all  corporations  subject  to 
the  tax  are  required  to  report  to  the  tax  commissioner  certain 
detailed  facts  concerning  their  business  and  the  property  used 
therein.  These  reports  included  a  complete  statement  of  the 
physical  property,  with  its  location,  whether  within  or  without  the 
state  and  the  facts  as  to  the  amount,  classes,  par  and  market 

^  Laws  of  Massachusetts,  1907,  ch.  563.  ^  Ibid.,  1916,  ch.  269. 

^  Cf.  Bullock,  "  The  Taxation  of  Corporations  in  Massachusetts,"  Quart.  Jour. 
Econ.,  xxi,  p.  192. 

*  Bullock,  op.  cit.,  pp.  184,  185. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  2iy 

value  of  its  capital  stock.  With  the  exception  of  street  railway 
companies  all  corporations  are  also  required  to  furnish  a  list  of 
stockholders  with  the  place  of  residence  and  the  number  of  shares 
held  by  each.  The  tax  commissioner  is  required  to  ascertain, 
from  the  returns  or  otherwise,  the  true  market  value  of  the  shares 
of  each  corporation  and  to  estimate  the  fair  cash  value  of  the 
total  volume  of  stock  outstanding.  If  the  stocks  have  market 
quotations  the  practice  has  usually  been  to  use  the  market  valua- 
tion of  about  April  i.^  The  value  of  unlisted  stocks  and  of  those 
having  no  quotations  has  been  assumed  to  be  equal  to  the  net 
assets,  the  amount  of  which  has  been  ascertained  by  deducting 
the  debts  from  the  aggregate  valuation  of  real  estate,  machinery, 
merchandise,  bills  receivable,  and  cash.^  The  practice  of  creating 
fictitious  debts  led  the  Joint  Special  Commission  of  1907  to  recom- 
mend that  no  debts  be  considered  by  the  tax  commissioner  unless 
accompanied  by  a  sworn  statement  that  they  had  not  been  in- 
curred for  the  purpose  of  evading  taxation.  This  recommenda- 
tion was  later  adopted. ^ 

The  next  step  is  to  ascertain  the  deductions  to  be  made  from 
the  aggregate  value  of  the  capital  stock  of  each  corporation.  The 
tax  commissioner  transmits  to  each  assessor  a  list  of  the  corpora- 
tions known  by  him  to  be  liable  to  taxation  on  their  corporate 
excess.  In  return  he  receives  from  the  local  officials  the  locally 
determined  assessment  of  real  estate  and  machinery.  These 
figures  may  be  accepted  as  the  true  value  of  these  forms  of  prop- 
erty, but  the  tax  commissioner  is  not  bound  by  them  and  he  is 
now  authorized  in  his  discretion  to  require  any  corporation  to 
prosecute  an  appeal  from  the  local  valuation.^  The  accuracy  of 
the  local  assessment  affects  the  distribution  of  the  tax,  and  the 
tax  commissioner  is  empowered  to  correct  the  local  figures.  He 
is  now  required,  also,  to  assess  the  poles,  wires,  conduits,  and  other 
structures  of  telegraph  and  telephone  companies,  and  apportion 

1  Cf.  Tax  Laws  of  New  York,  19 10,  §  40. 

2  Report  of  the  Commission  on  Taxation,  1897,  pp.  16,  69;  Massachusetts  Tax 
Commissioner,  Report,  1905,  pp.  24,  25. 

3  Report  of  the  Joint  Special  Committee  of  Massachtisetts,  1907,  p.  118;  Laws  of 
Massachusetts,  1910,  ch.  270. 

*  Ibid.,  1909,  ch.  439. 


21 8  THE  STATE  TAX  COMMISSION 

these  values  locally.  Previous  to  1902  these  various  structures, 
the  property  of  telegraph  and  telephone  companies,  were  exempt 
from  the  local  assessment.^  In  this  year  the  towns  secured  an 
amendment  making  this  property  taxable  where  located  with 
a  view  to  increasing  the  local  revenues.^  The  local  piecemeal 
assessment  of  forms  of  property  extending  continuously  through 
a  number  of  tax  districts  cannot  be  adequately  performed  by 
the  local  assessors  of  Massachusetts  or  of  any  other  state.  In 
1914  the  tax  commissioner  reported  that  much  of  this  property 
was  escaping  and  that  serious  inequalities  marked  the  results  in 
adjoining  districts.^  His  recommendation  for  a  state  assessment 
and  apportionment  of  this  property  was  immediately  accepted 
by  the  legislature.'* 

The  historical  development  of  the  Massachusetts  tax  system 
has  lessened  the  need  of  such  an  extended  application  of  the  unit 
rule  as  has  been  found  necessary  in  other  states.  Turnpike  and 
bridge  companies  have  enjoyed  exemption  on  their  property,  a 
concession  which  was  of  greater  significance  in  the  days  when 
such  companies  were  important.  A  court  decision  of  1842 
exempted  from  local  taxation  the  right  of  way  of  railroads  to  a 
distance  not  exceeding  five  rods  in  width.  ^  The  corporate  excess 
of  railroads,  as  now  assessed,  includes  therefore  some  element  of 
real  estate  value. ^ 

The  calculation  of  the  amount  of  corporate  excess  on  which 
each  corporation  shall  be  taxed,  the  determination  of  the  average 
rate  of  taxation  to  be  applied,  and  the  distribution  of  the  taxes 
complete  the  administrative  duties  of  the  tax  commissioner  in 
connection  with  the  general  corporation  tax.  After  the  data 
described  above  have  been  compiled  these  matters  become  more 
or  less  routine  in  character  and  impose  principally  additional 

1  Massachusetts  Tax  Commissioner,  Report,  1914,  p.  27. 

^  Laws  of  Massachusetts,  1902,  ch.  342. 

'  Massachusetts  Tax  Commissioner,  Report,  1914,  pp.  27-30. 

*  Laws  of  Massachusetts,  1915,  ch.  137. 

*  Bullock,  "  Taxation  of  Corporations  in  Massachusetts,"  Quart.  Jour.  Econ., 
xxi,  185.  Cf.  also  The  Inhabitants  of  Worcester  v.  The  Western  Railroad  Corpora- 
tion,  4  Metcalf,  564. 

*  Bullock,  loc.  cit.,  pp.  218,  219. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  219 

clerical  labors  upon  the  tax  department.  In  some  respects,  how- 
ever, they  serve  to  emphasize  certain  defects  in  the  Massachusetts 
system  of  corporate  taxation. 

The  first  of  these  defects  is  in  the  limited  scope  of  the  corpora- 
tion tax  and  its  inadequacy  as  a  means  of  reaching  corporate 
abiUty  to  pay.  It  is  unnecessary  here  to  enter  into  the  full  dis- 
cussion of  this  phase  of  the  subject,  a  phase  which  has  been  quite 
fully  treated  by  the  tax  commissioner  and  by  various  writers  on 
the  Massachusetts  corporation  tax.^  The  exclusion  of  corpora- 
tion bonds  from  the  calculation  of  corporate  excess  is  generally 
held  to  be  a  mistake,  since  corporate  debts  represented  by  bonds 
constitute  as  truly  an  investment  of  capital  in  the  business  as 
does  the  capital  stock.^  With  the  restriction  of  bond  issues  by  the 
Massachusetts  law  there  is  less  likelihood  of  extensive  evasion  in 
this  manner  than  in  other  states,  and  in  any  case  it  is  doubtful  if 
the  difference  in  tax  burden  would  often  prove  the  determining 
consideration  in  a  choice  of  bonds  instead  of  stocks  in  new  cor- 
porate financing.  In  1913  the  legislature  raised  the  bond  limit 
from  one  to  two  dollars  of  bonds  for  each  dollar  of  stocks  of  public 
utilities  outstanding.^  The  tax  commissioner  pointed  out  that 
under  this  measure  new  financing  might  tend  to  be  undertaken 
by  a  larger  use  of  bonds,  a  fact  which  would  tend  to  decrease  the 
equities  in  the  capital  stock.  This  decrease  in  the  amount  of 
corporate  excess  taxable  at  the  average  state  tax  rate  would 
hardly  be  offset  by  increased  effectiveness  in  taxing  new  bonds 
for  local  purposes,  although  some  gain  may  now  be  expected 
under  the  new  income  tax.  The  amount  of  corporate  excess 
assessed  to  the  pubUc  service  corporations  has  decKned  materially 
since  191 2.'' 

'  Massachusetts  Tax  Commissioner,  Report,  191 1,  p.  30;  Bullock,  TJte  Finances 
of  Massachiisetls,  pp.  118,  119;  C.  A.  Andrews,  "  The  Taxation  of  Corporate  Fran- 
chises in  Massachusetts,"  Yale  Review,  xix,  p.  357. 

^  Ripley,  Railroads:  Finance  and  Organization,  ch.  2. 

'  Laws  of  Massachtisells,  19 13,  ch.  784. 

*  Amount  of  Corporate  Excess  assessed  to 

Street  Other  public  ser- 

Year                                                                           Railways         (millions)  vice  corporations 

iQia $66.6  $2437 

igij 60.2  207.8 

1914 53-2  164.9 

191S 46.1  I4S-* 


220  THE  STATE  TAX  COMMISSION 

The  taxes  paid  by  these  corporations  have  declined  heavily  also, 
notwithstanding  an  increase  in  the  average  rate  of  taxation  since 
191 2.  Various  influences  have  undoubtedly  contributed  to  this 
decline  in  stock  values,  a  decHne  which  reduced  the  franchise  tax 
on  the  pubHc  service  corporations  by  more  than  $2,000,000  from 
191 2  to  191 5.  In  all  cases,  certainly,  it  does  not  represent  a 
decHne  in  tax  paying  abihty,  since  there  have  been  new  issues  of 
stock  which  have  been  paralleled  by  new  construction  of  plant 
subject  to  local  taxation.^ 

The  advantage  indirectly  given  to  the  pubHc  service  corpora- 
tions through  the  change  in  the  bond  Hmit  and  the  exclusion  of 
bonds  from  the  calculation  of  corporate  excess  is  paralleled  for 
the  ordinary  business  corporation  by  the  limitation  of  the  tax- 
able corporate  excess  to  1 20  per  cent  of  the  real  estate,  machinery, 
merchandise,  and  taxable  securities. ^  This  restriction  of  the 
amount  of  taxable  corporate  excess  of  the  private  business  cor- 
poration was  evidently  designed  to  afford  a  certain  protection 
and  encouragement  to  these  classes  of  corporations;  but  it 
actually  operates  with  the  greatest  injustice,  since  it  penaHzes 
those  companies  which  carry  a  considerable  stock  of  merchandise 
while  it  virtually  exempts  others  with  a  small  stock  of  merchan- 
dise but  with  large  assets  in  the  form  of  bills  receivable,  cash,  etc. 
The  tax  commissioner  has  pointed  out  that  this  limiting  clause 
affects  only  about  one-third  of  all  the  corporations  taxed  under 
this  law  in  Massachusetts —  2,292  out  of  a  total  of  6,478  com- 
panies in  191 5.  But  those  which  do  obtain  the  advantage  are 
among  the  most  securely  estabhshed  and  most  prosperous  of  all 
the  companies  doing  business  in  the  state.  The  untaxed  portion 
of  the  corporate  excess  in  1915  was  $102,805,836,  as  against  a 
taxable  amount  of  $95,775,502.^ 

A  similar  advantage  accrues  to  certain  classes  of  companies 
from  the  statutory  provision  that  mortgages,  to  an  amount  equal 
to  the  assessed  value  of  the  real  estate,  are  an  interest  in  real 

1  Massachusetts  Tax  Commissioner,  Report,  1915,  p.  8. 

'^  Laws  of  Massachusetts,  1903,  ch.  437. 

^  Massachusetts  Tax  Commissioner,  Report,  1915,  pp.  18, 19.  Cf.  Bullock, 
"Taxation  of  Corporations  in  Massachusetts,"  Quart.  Jaur.  Econ.,  x:d,  pp.  211- 
213,  for  a  discussion  of  the  discrimination  against  unincorporated  concerns. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  221 

estate.^  This  provision,  as  construed,  actually  permits  deduc- 
tion of  all  real  estate  and  mortgages  owned. ^  The  trust  com- 
panies seem  to  have  profited  most  by  this  legal  position.  In 
191 5  the  tax  commissioner,  comparing  the  situation  of  that  year 
with  191 2,  found  that  there  were  nine  additional  trust  companies, 
that  the  combined  capital  and  surplus  was  larger  by  $626,176, 
and  that  the  aggregate  gross  earnings  were  greater  by  $5,781,007; 
but  that  the  aggregate  tax  liability  was  less  by  $94,649.  In  the 
case  of  thirty-seven  out  of  the  seventy-five  trust  companies  oper- 
ating under  Massachusetts  charters  in  191 5  the  mortgage  deduc- 
tion overbalanced  the  taxable  value  and  there  was  no  taxable 
corporate  excess.^ 

The  changes  in  the  method  of  distributing  the  tax  on  the  cor- 
porate excess  reflect,  in  an  interesting  way,  the  struggle  that  has 
been  going  on  in  several  states  to  secure  a  greater  revenue  for  the 
municipalities  in  which  the  corporate  property  is  located  and  in 
which  the  business  is  actually  carried  on.  The  familiar  principle, 
mohilia  personam  sequuntur,  was  followed  in  the  earUer  laws  for 
the  taxation  of  corporations  in  Massachusetts  and  the  portion  of 
the  tax  not  retained  by  the  state  on  account  of  non-resident 
shareholders  was  distributed  to  the  locaKties  in  which  the  share- 
holders happened  to  reside.  In  the  course  of  time  the  rising  tax 
burden  of  the  larger  municipalities  led  to  a  general  migration  of 
wealthy  stockholders  to  the  smaller  residential  towns  in  which 
the  local  tax  rates  became  merely  nominal.  Meanwhile  the  tax 
burdens  of  the  industrial  centers  became  progressively  heavier. 
This  situation  received  the  attention  of  several  of  the  special  tax 
commissions  which  have  been  created  in  recent  years.  The  com- 
mission of  1897  recommended  that  the  state  retain  the  tax  on 
the  corporate  excess  and  then  assume  the  expenses  of  the  coun- 
ties.'* The  Joint  Special  Commission  of  1907  advised  the  reten- 
tion by  the  state  of  the  tax  on  the  corporate  excess  of  railroad, 
telegraph,  and  telephone  companies  with  a  corresponding  reduc- 
tion of  the  direct  state  tax.^  The  Commission  on  Taxation,  report- 

'  Laws  of  Massachusetts,  1881,  ch.  304.  ^  137  Mass.  80. 

^  Massachusetts  Tax  Commissioner,  Report,  1915,  pp.  8,  9. 

*  Commission  on  Taxation,  Report,  1897,  pp.  116-118. 

*  Joint  Special  Commission  on  Taxation,  Report,  1907,  pp.  35-39. 


222  THE  STATE  TAX  COMMISSION 

ing  in  1908,  endorsed  this  proposal,  and  a  minority  desired  to 
extend  it  to  the  tax  paid  by  manufacturing  and  business  corpora- 
tions as  well.  The  majority  recommendation  on  this  point, 
however,  was  the  proposal  that  one-half  of  the  tax  on  business 
and  manufacturing  companies  be  distributed  according  to  the 
domicile  of  the  owners,  one-half  according  to  the  location  of  the 
plant  or  the  conduct  of  the  business.^  This  recommendation  was 
adopted  in  1908.^  A  series  of  amendments  have  since  turned 
over  to  the  towns  in  which  the  business  is  carried  on  the  whole 
of  the  tax  on  these  corporations  except  that  part  retained  by  the 
state  on  account  of  non-residents.  This  method  of  distribution 
was  adopted  for  all  classes  of  corporations  in  1916,^  leaving  only 
the  receipts  from  the  bank  tax  to  be  distributed  according  to  the 
domicile  of  the  shareholders. 

In  addition  to  his  duties  in  connection  with  the  general  cor- 
poration tax  the  tax  commissioner  is  given  supervision  over  the 
special  taxes  that  have  been  imposed  upon  certain  classes  of  cor- 
porations. The  Kst  of  such  taxes  includes  the  taxes  on  savings 
banks  and  the  savings  departments  of  trust  companies,  the  excise 
tax  on  foreign  corporations,  a  series  of  taxes  on  insurance  com- 
panies, a  tax  on  express  companies,  and  various  minor  taxes.  In 
most  cases  the  tax  is  a  specific  tax,  levied  on  some  feature  of  the 
business  which  is  a  matter  of  record.^  The  administrative  duties 
in  this  connection  are  largely  routine  and  call  for  no  special 
comment. 

The  operation  of  the  system  of  taxing  National  Banks  requires 
a  certain  oversight  by  the  tax  commissioner.  Under  the  federal 
statute  shares  of  stock  in  such  banking  institutions  are  to  be  taxed 
as  personal  property  to  their  owners  in  the  city  or  town  in  which 
the  bank  is  located,  on  an  assessment  made  by  the  local  assessors. 
The  tax  is  paid  by  the  bank  to  the  local  collector.    After  deduct- 

^  Commission  on  Taxation,  Report,  1908,  pp.  12-21. 

2  Laws  of  Massachusetts,  1908,  ch.  614. 

'  Ibid.,  1916,  ch.  299;  also,  ibid.,  1910,  ch.  456,  and  1914,  ch.  198. 

*  Such  as  deposits  less  certain  investments  in  the  case  of  savings  banks,  net 
premiums  of  insurance  companies,  the  authorized  capital  stock  of  foreign  corpora- 
tions, and  the  corporate  excess  of  express  companies.  The  last  named  companies 
have  paid  no  tax  under  this  law  since  191 2.  The  excise  tax  on  foreign  corporations 
was  sustained  in  232  U.S.  1. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  223 

ing  I  per  cent  for  expenses  of  collection  the  remainder  of  the  tax 
is  divided  between  the  state  and  the  communities  in  which  the 
owners  of  the  stock  reside,  the  state  taking  the  tax  due  on  the 
shares  owned  by  non-residents.  The  tax  commissioner  is  required 
to  supervise  the  returns  in  order  to  insure  that  the  state  receives 
its  proper  allotment  of  taxes  and  that  the  proper  distribu- 
tion is  made  to  communities  according  to  the  residence  of  the 
stockholders. 

The  Apportionment  of  the  State  Tax 

The  history  of  central  control  over  the  assessments,  upon  which 
the  direct  tax  for  state  or  provincial  purposes  is  levied,  goes  back 
to  the  later  seventeenth  century  for  its  beginning.  It  has  been 
noted  above ^  that  the  tax  burden  in  Massachusetts  tended  to  be- 
come very  heavy  at  different  times  during  the  seventeenth  cen- 
tury, and  especially  during  the  various  Indian  outbreaks.  Local 
equalization,  performed  in  each  county  by  special  commissioners, 
appears  to  have  been  introduced  quite  early  in  the  history  of  the 
colony.  Such  decentralized  administrative  measures  were  not 
successful  in  securing  full  returns  of  property  and  income  and  an 
equitable  distribution  of  the  tax  burden.^  Consequently,  toward 
the  end  of  the  century  a  central  review  of  the  assessment  was 
introduced  for  the  purpose  of  correcting  the  tax  roll.  One  of  the 
first  instances  of  this  practice  —  probably  the  earHest  — occurred 
in  December,  1692,  in  connection  with  an  act  ordering  a  reassess- 
ment to  make  good  the  deficiency  in  a  tax  levy  of  June,  1692.^ 
The  General  Court  was  to  appoint  two  commissioners  for  each 
county,  who  were  to  go  into  the  respective  counties  and  review 
the  assessment  lists  with  the  selectmen.  After  the  lists  had 
been  "  regulated,  corrected  and  perfected,"  the  special  commis- 
sioners were  to  bring  them  to  Boston  and  there  review  them 

'  Cf.  above,  p.  19. 

^  Day,  op.  cit.  Professor  Day  has  recently  written  me  that  the  equalization 
committee  appointed  by  the  General  Court  in  1668  met  as  a  single  board  and 
probably  equalized  between  counties  as  well  as  between  towns.  Intercounty  equal- 
ization did  not  become  a  settled  practice  after  this  date,  however,  until  near  the 
end  of  the  century.    Personal  Letter  from  Professor  E.  E.  Day,  July  19,  191 7. 

'  The  original  act  is  Laws,  1692-93,  ch.  4;  Prov.  I,  p.  29;  the  amendment  is  Laws, 
1692-93,  ch.  41;  Prov.  I,  p.  91. 


224  THE  STATE  TAX  COMMISSION 

all  in  order  to  insure  the  levy  of  the  sum  of  30,000  pounds.  Any 
defects  were  to  be  reported  to  the  next  sitting  of  the  general 
assembly. 

This  procedure  was  not  followed  regularly  thereafter,  but  was 
abandoned  for  a  review  and  equalization  by  a  committee  of  the 
General  Court.^  Under  the  provincial  charter  of  1692  the  system 
of  apportioning  the  tax  for  provincial  expenses  was  adopted  and 
the  General  Court  enacted  from  time  to  time  a  schedule  showing 
the  amount  to  be  collected  from  each  town  in  the  province. 
Assessments  for  the  purpose  of  estabhshing  this  apportionment 
were  ordered  at  irregular  intervals  during  the  eighteenth  century, 
and  in  each  case  the  local  returns  were  equahzed  by  a  committee 
from  the  General  Court.  In  a  few  cases  there  was  apparently  a 
prehminary  correction  by  special  commissioners  as  in  December, 
1692.2  The  constitution  of  1780  required  that  a  new  assessment 
should  be  made  at  least  as  often  as  once  in  ten  years.  The  legisla- 
tive committee  continued  to  perform  the  function  of  a  state 
equalization  board  until  187 1  when  the  task  was  assumed  by  the 
tax  commissioner.  The  work  of  the  committees  was  based  upon 
study  of  local  methods  and  results,  but  their  efforts  were  naturally 
not  sufficient  to  prevent  the  steady  progress  of  undervaluation. 
In  1792  the  committee  found  the  returns  from  the  different  towns 
to  be  marked  by  striking  features  of  injustice  and  as  a  remedy  it 
proceeded  to  add  ^ 

.  .  .  such  articles  and  amount  of  property  not  included  in  the  returns  as 
by  their  best  judgment  deliberately  used,  it  appeared  that  the  inhabitants 
of  the  different  places  must  be  possessed  of  to  give  support  to  themselves 
and  to  their  Cattle  which  it  was  evident  they  derived  from  sources  within 
their  own  limits  .... 

The  methods  of  the  legislative  committee  may  be  further 
illustrated  by  reviewing  the  equaUzation  for  the  year  i860.*  The 
procedure  in  this  was  probably  typical  of  the  practice  during  the 

1  Bullock,  The  Finances  of  Massachusetts,  p.  12. 

2  For  example,  in  1718  and  1727.  Cf.  Prov.  II,  p.  105,  ch.  11  of  1718,  and  ibid., 
p.  418,  ch.  2  of  1727. 

'  Quoted  by  BuUock,  Finances  of  Massachusetts,  pp.  13,  14,  note. 
*  Journal  and  Documents  of  the  Valuation  Committee  of  i860.    This  year  is  taken 
because  the  documents  happened  to  be  most  readily  available  to  the  writer. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  225 

middle  of  the  nineteenth  century,  as  the  committee  appointed  in 
i860  drew  largely  from  the  experience  of  the  past.  The  order  of 
business  was  adopted  without  serious  modification  from  the  report 
of  the  valuation  committee  of  1850.^  The  first  step  was  the  agree- 
ment to  appraise  at  a  uniform  value  those  items  of  property  which 
were  considered  to  be  of  uniform  real  value  throughout  the  state. 
These  included  the  various  classes  of  farm  animals  and  gold  and 
silver  plate.^  For  the  purpose  of  establishing  the  valuation  of  the 
various  cities  and  towns  it  had  apparently  been  the  custom  for  the 
members  of  the  committee  from  each  county  to  select  a  sample 
town,  the  property  of  which  was  to  be  appraised  by  the  equaliza- 
tion committee,  together  with  such  items  as  were  returned  from 
other  towns  and  cities  in  the  county  but  were  not  included  in  the 
return  from  the  sample  town.  Each  county  delegation  was  then 
to  value  the  items  from  their  cities  and  towns  in  accordance  with 
the  principles  established  in  appraising  the  sample  town.  This 
practice  was  similar  to  the  attempt  of  the  Ohio  state  board  of 
equahzation  to  equalize  the  counties  on  the  basis  of  the  best- 
assessed  county,^  and  possibly  suggested  to  the  early  Ohio  boards 
that  method  of  procedure.  The  Ohio  and  Massachusetts  methods 
parted  company  at  this  point.  No  statutory  Hmitations  were  im- 
posed on  the  latter  board;  on  the  contrary,  it  was  given  the  right 
of  doomage  for  the  purpose  of  attaining  full  valuations.  Sub- 
committees were  appointed  for  special  classes  of  property,  such 
.as  ropewalks,  rolling  mills  and  furnaces,  factories  of  various 
sorts,  and  other  classes  of  industrial  establishments.^ 

Equipped  with  the  right  of  doomage  the  valuation  committee 
was  virtually  empowered  to  reassess  property  in  order  to  fulfill 
the  mandate  of  the  resolution  providing  for  the  equalization, 
which  required  an  appraisal  or  estimate  of  all  the  property  at  its 
"  true  and  just  value."  ^  Nevertheless,  full  valuation  was  not 
maintained  through  the  nineteenth  century  by  the  apportion- 

'  Journal  and  Documents  of  the  Valuation  Committee  of  i860,  p.  40. 

2  Ibid.,  p.  169. 

'  Cf.  above,  pp.  48,  49. 

*  Journal  and  Documents  of  the  Valuation  Committee  of  i860,  pp.  40-42. 

•  Ibid.,  p.  15. 


226  THE  STATE  TAX  COMMISSION 

ments  and  equalizations  so  conducted.^  The  commission  of  1875 
reported  the  discovery,  by  the  tax  commissioner,  of  municipah- 
ties  which  had  valued  their  property  as  low  as  two-thirds  or 
one-half  of  its  admitted  market  value. ^  The  source  of  the  tax 
commissioner's  information  is  not  indicated,  but  it  is  significant 
to  note  that  he  promptly  advanced  these  cities  to  their  proper 
valuation.  This  action  indicates  clearly  that  when  the  tax  com- 
missioner first  undertook  the  duty  of  state  equalization  in  187 1  he 
was  equipped,  or  at  least  considered  himself  to  be  equipped,  with 
the  strong  corrective  authority  over  improper  assessments  that 
the  legislative  committees  had  enjoyed. 

This  appears  to  have  been  the  general  view,  for  it  occasioned 
much  surprise  in  Massachusetts  when  the  tax  commissioner  was 
advised  by  the  Attorney-General  in  1909  that  under  the  act  of 
1 88 1,  which  provided  for  a  triennial  apportionment  to  be  made 
by  the  tax  commissioner,  he  was  restricted  to  the  information 
received  from  assessors  and  other  pubHc  officials  relative  to  the 
amount  and  value  of  taxable  property;  and  that  he  was  wholly 
unauthorized  to  make  use  of  information  from  any  other  source.' 
Obviously  a  state  equahzation,  in  which  the  equalizing  agent  is 
confined  to  the  data  to  be  equalized,  or  to  supplementary  ma- 
terials reported  by  the  assessors  themselves  and  other  local 
ofl&cials,  was  of  little  value.  The  explanation  for  this  rather  tardy 
definition  of  his  powers  appears  to  be  that  in  the  earlier  state 
equalizations  no  great  amount  of  outside  information  had  been 
in  the  possession  of  the  tax  commissioner,  and  his  then  rather 
restricted  conception  of  his  duties,  together  with  the  absence  of 
adequate  machinery  for  the  collection  of  additional  data,  pre- 
vented the  question  from  rising  at  all.  The  situation  had  been 
changed  by  the  provision  of  supervisors  of  assessment  in  1908, 
and  the  initiation,  in  1907,  of  central  supervision  of  the  inheri- 
tance tax.  Through  both  of  these  channels,  as  well  as  from  the 
widespread  discussion  of  the  tax  problem  then  going  on  over  the 

^  Cf.  Bullock,  The  General  Properly  Tax,  reprinted  from  the  Boston  Transcriptf 
January  13,  20,  27,  1909. 

*  Report  of  the  Commission  on  Taxation,  1875,  P-  84. 

'  Massachusetts  Tax  Commissioner,  Report,  1909,  pp.  36-39. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  227 

state/  an  increasing  amount  of  valuable  supplementary  data  had 
poured  into  the  tax  commissioner's  office  and  had  finally  raised 
the  question  of  his  precise  powers  under  the  statute.  After  recom- 
mending for  two  years  that  the  law  be  amended  to  permit  the  use 
of  this  material,  he  received  from  the  legislature  in  191 1  authority 
to  make  use  of  all  of  the  information  in  his  possession  regardless 
of  its  source.^ 

This  amendment  cleared  the  way  for  a  vigorous  revision  of  the 
local  returns,  and  in  the  triennial  apportionment  of  1913  about 
$350,000,000  were  added  to  the  local  assessment.'  The  commis- 
sioner made  good  use  of  his  additional  data  but  the  way  in  which 
the  increases  had  to  be  made,  under  the  Massachusetts  law, 
resulted  in  a  certain  degree  of  injustice.  The  amounts  added  to 
any  district  increased  thereby  that  unit's  share  of  the  state  tax; 
but  this  greater  tax  was  levied  upon  the  property  already  listed 
and  not  upon  the  property  added  in  the  equalization.  The  revi- 
sion of  the  local  rolls  resulted,  therefore,  in  greater  equality  among 
municipalities  but  in  a  greater  inequahty  among  the  individuals 
in  any  town  in  which  corrections  of  this  sort  were  made.  The 
fundamental  injustice  of  the  general  property  tax  in  Massa- 
chusetts is  shown  by  the  commissioner's  estimate  that  the  amount 
of  sequestered  property  listed  by  him  was  not  over  10  per  cent  of 
the  total  quantity  of  such  property  in  the  state.  Of  the  total 
amount  added  by  the  tax  commissioner  in  the  equahzation  of 
1913,  some  $87,500,000  were  placed  upon  real  estate.  The  com- 
missioner held  that  this  sum  was  a  conservative  estimate  and 
that  it  would  have  been  greatly  increased  by  more  efficient 
methods  of  comparing  real  estate  values.  To  make  this  possible 
he  recommended  legislative  provision  of  means  whereby  sales 
ratios  might  be  constructed.* 

No  provision  for  sales  ratios  or  other  aids  of  this  sort  has  as  yet 
been  made.  Under  the  statutory  limitations  which  still  prevail; 
the  tax  commissioner's  recently  extended  powers  of  revising  the 
assessment  lists  are  still  quite  inadequate  to  secure  a  proper  dis- 

^  Special  tax  commissions  reported  in  1907  and  1908. 

*  Laws  of  Massachusetts,  191 1,  ch.  366.  *  Ibid.,  1915,  pp.  30-33. 

'  Massachusetts  Tax  Commissioner,  Report,  1913,  p.  9. 


228  THE  STATE  TAX  COMMISSION 

tribution  of  the  common  burden  of  state  and  county  taxes.  The 
new  income  tax  removes  intangibles  —  the  most  troublesome 
class  —  from  the  local  assessment.  But  it  must  not  be  over- 
looked that,  even  with  this  improvement,  the  forms  of  property 
that  remain  subject  to  local  taxation  in  Massachusetts  are 
numerous  and  quite  diversified  both  as  to  income  power  and  as  to 
certainty  of  assessment.  The  problems  of  proper  assessment  and 
equalization  are  not  cleared  away;  they  are  only  made  somewhat 
less  difficult  by  the  income  tax.  In  order  to  deal  with  these  more 
definite  but  by  no  means  easy  problems,  the  tax  commissioner's 
powers  and  resources  should  be  extended,  not  only  in  the  equaHza- 
tion  but  in  the  supervision  and  control  of  the  original  assessment. 
However  thorough  and  vigorous  the  state  equalization,  it  can 
never  wholly  overcome  the  defects  of  an  inequitable  assessment. 
The  taxation  of  property  which  is  assessed  by  local  officials 
remains  the  foundation  of  the  Massachusetts  tax  system,  and  to 
the  tax  commissioner's  powers  and  duties  in  supervising  this 
assessment  attention  will  now  be  turned. 

Supervision  of  the  Local  Officials 

Although  revision  of  local  assessments  had  been  within  the 
province  of  the  legislative  committees  on  equahzation  and  had 
been  practiced  by  them,  supervision  of  the  local  assessment,  that 
is,  control  of  the  conditions  under  which  the  local  assessment  is 
made,  did  not  appear  in  Massachusetts  until  a  comparatively 
recent  date.  Its  advantages  had  been  perceived,  however,  as 
early  as  1875,  and  the  Commission  on  Taxation  which  reported 
in  that  year  recommended  that  the  tax  commissioner  be  given 
power  to  designate  one  member  of  each  local  board  of  assessors 
as  the  representative  of  the  state. ^  This  proposal  passed  unheeded 
and  the  idea  of  central  supervision  of  the  original  local  assess- 
ment lay  dormant  until  1898  when  provision  was  made  for  a 
deputy  tax  commissioner.^  The  motive  in  creating  this  office  was 

1  Report  of  the  Commission  on  Taxation,  1875,  p.  84.  Urged  upon  the  Special 
Commission  of  1909  by  a  member  of  the  earUer  body.  Report  of  the  Commission  on 
Tax  Laws,  1909,  p.  71. 

*  Laws  of  Massachusetts,  1898,  ch.  507. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  229 

in  part  the  relief  of  the  tax  commissioner,  whose  duties  had  be- 
come quite  burdensome;  but  advantage  was  taken  of  the  oppor- 
tunity to  extend  the  department's  authority  beyond  its  original 
jurisdiction.  The  deputy  was  to  be  appointed  by  the  tax  com- 
missioner, with  the  advice  and  consent  of  the  governor  and 
council,  and  was  to  perform  the  following  duties:  ^ 

.  .  .  visit  any  city  or  town,  inspect  the  work  of  its  assessors  and  give 
them  such  information  and  require  of  them  such  action  as  wUl  tend  to  pro- 
duce uniformity  in  valuation  and  assessments  throughout  the  Common- 
wealth; to  cause  an  assessor  who  violates  any  of  the  laws  relative  to  the 
assessment  of  taxes  for  which  a  penalty  is  imposed  to  be  prosecuted  .  .  . ; 
to  appear  before  the  superior  court  or  any  board  of  county  conrunissioners 
sitting  for  the  abatement  of  taxes. 

While  the  statutory  language  above  quoted  was  perhaps 
expected  to  provide  eflfective  state  supervision  over  local  assess- 
ments, it  was  in  reaHty  incapable  of  introducing  such  a  reform. 
The  deputy  tax  commissioner  was  apparently  given  authority 
to  require  the  action  necessary  to  secure  uniform  valuations  and 
more  complete  assessments;  but  his  only  recourse  against  the 
local  assessor's  dereliction  of  duty  was  legal  prosecution.  Experi- 
ence in  many  states  has  proved  that  this  remedy,  involving  the 
slow-moving  machinery  of  the  courts,  amounts  in  practice  to  no 
remedy  at  all.  The  deputy  tax  commissioner  was  therefore  given 
virtually  no  means  of  influencing  local  assessments  except  that  of 
persuasion  and  no  duty  but  to  offer  instructions  and  advice. 
Reassessment  of  the  property  and,  when  necessary,  the  removal 
of  the  assessor  have  been  found  to  be  the  only  really  effective 
agencies  of  central  control  over  local  assessments,  and  these  were 
not  provided  by  the  law  of  1898.  Authority  was  given  to  examine 
the  assessor's  books  and  investigate  the  quality  of  his  work;  but 
the  absence  of  adequate  corrective  powers  in  the  event  that  dis- 
crepancies of  any  sort  were  discovered  rendered  the  cultivation 
of  this  portion  of  the  deputy's  field  of  authority  rather  unprofit- 
able. Further,  the  task  of  adequate  supervisory  inspection,  even 
in  a  state  of  no  greater  extent  than  Massachusetts,  was  far  beyond 
the  capacity  of  a  single  official.  For  the  first  decade,  therefore, 
the  deputy  tax  commissioner  was  compelled  to  rely  upon  visits 
'  Laws  of  Massachuseits,  1898,  ch.  507. 


230  THE  STATE  TAX  COMMISSION 

and  explanatory  instructions  to  new  assessors  as  they  assumed 
office,  with  a  certain  amount  of  inspection  of  the  manner  in  which 
these  officials  made  up  their  assessment  rolls. ^ 

It  is  clear  that  state  supervision  of  local  assessments  of  the  sort 
here  described  could  not  prove  effective  in  correcting  the  abuses 
of  improper  assessments.  The  Commission  on  Taxation  reporting 
in  1908  thus  summed  up  the  situation:  ^ 

Real  property  is  frequently  undervalued,  and  this  fact,  despite  the  best 
efiforts  of  the  tax  commissioner  {i.  e.,  in  equalization),  produces  inequality 
in  the  state  tax.  Machinery  and  merchandise  are  assessed  by  no  uniform 
rules,  while  in  the  taxation  of  intangible  property  the  situation  is  little  short 
of  chaotic. 

A  similar  conclusion  with  regard  to  intangible  property  had 
already  been  reached  by  the  Joint  Special  Committee  of  1907, 
which  declared  that  the  present  system  had  failed  and  would 
continue  to  fail  to  reach  the  bulk  of  such  property.^  This  com- 
mittee recommended  an  enlargement  of  the  tax  department  and 
proposed  a  bill,  which  among  other  things  made  provision  for  the 
appointment  by  the  tax  commissioner  of  four  supervisors  of 
assessment.^  The  Commission  on  Taxation  of  1908  repeated  this 
suggestion  but  proposed  to  increase  the  number  of  supervisors  to 
twelve  and  to  extend  the  tax  commissioner's  authority  to  include 
the  review  and  revision  of  assessments.  The  commission's  bill  as 
submitted  provided  further  that  the  tax  department  should  serve 
more  specifically  as  a  clearing  house  of  information  concerning 
taxable  property.  In  1908  the  legislature  undertook  a  reorganiza- 
tion of  the  tax  department  along  the  lines  suggested  by  the  Joint 
Special  Committee  of  1907,  though  all  of  the  specific  changes 
recommended  by  that  body  were  not  adopted.  ^  With  the  advice 
and  consent  of  the  governor  and  council  the  tax  commissioner  was 
authorized  to  appoint  a  deputy  tax  commissioner  and  three 
assistants  who  were  to  be  assigned  to  certain  general  departments. 

1  The  work  of  the  deputy  has  been  frequently  described.  Cf.  the  Massachusetts 
Tax  Commissioner,  Report,  1899,  p.  21;  ibid.,  1900,  pp.  14,  15;  i^^^-^  ^QOi.  PP-  ^S. 
16,  etc. 

"^  Report  of  the  Commission  on  Taxation,  1908,  p.  73. 

^  Report  of  the  Joint  Special  Committee  on  Taxation,  1907,  p.  3. 

■•  Ibid.,  Appendix  A,  especially  p.  98. 

*  Report  of  the  Commission  on  Taxation,  1908,  pp.  73,  74- 


TAX  COMMISSIONER  OF  MASSACHUSETTS  23  I 

He  was  also  to  select  three  supervisors  of  assessments,  through 
whom  supervision  of  the  local  assessments  was  to  be  maintained. 

This  revision  of  the  law  brought  much-needed  relief  to  the  tax 
department  and  permitted  an  expansion  of  the  administrative 
organization  that  had  been  rendered  imperative  by  the  pressure 
of  work.  No  improvement  was  made,  however,  at  the  point  most 
vital  to  successful  supervision  of  local  assessments,  since  no 
authority  was  given  the  central  head  of  the  tax  system  to  enforce 
its  suggestions.  The  supervisors  were  to  furnish  the  assessors 
with  all  information  that  had  come  to  the  tax  commissioner's 
office  relative  to  property  in  their  respective  districts,  but  the 
only  means  of  compelHng  its  use  was  through  the  mayor  of  a  city 
or  the  selectmen  of  a  town,  to  whom  the  tax  commissioner  might 
make  such  recommendations  as  he  should  deem  "  necessary  or 
expedient  in  the  matter."  ^  If,  as  frequently  happened,  the  select- 
men were  also  the  assessors,  the  attention  paid  to  the  suggestions 
may  well  be  imagined.^  The  tax  commissioner  has  been  inclined  to 
emphasize  the  indifference  of  some  assessors  and  in  19 14  he  spoke 
especially  of  the  fear  of  driving  out  of  town  some  person  of  wealth 
as  troubling  too  much  some  of  the  assessors.^  He  was  apparently 
referring  to  the  assessors  in  certain  residential  towns,  into  which  a 
considerable  migration  of  wealthy  persons  was  going  on.  Pro- 
fessor Bullock  has  more  recently  stated  that  in  a  majority  of 
towns  the  commissioner's  recommendations  met  with  substantial 
compliance  and  that  as  a  result  the  act  of  1908  proved  fairly 
effective.'' 

Greater  effectiveness  in  administration,  to  whatever  degree 
it  was  attained,  only  hastened  the  breakdown  of  the  general  prop- 
erty tax.  The  transfer  of  the  administration  of  the  inheritance  tax 
to  the  tax  commissioner's  office  in  1907,  and  the  extension  of  this 
tax  to  cover  direct  inheritances  gave  the  state  officials  access  to 
all  property  passing  by  bequest.  With  the  new  facihties  for  inves- 

^  Report  of  the  Joint  Special  Committee  on  Taxation,  1907,  pp.  20,  21.  Laws  of 
Massachusetts,  1908,  ch.  550. 

*  Tax  Laws  of  Massachusetts,  191 2,  p.  82. 

^  Massachusetts  Tax  Commissioner,  Report,  1914,  p.  50. 

*  Bullock,  "  Taxation  of  Property  and  Incomes  in  Massachusetts,"  Quart. 
Jour.  Econ.,  xxxi,  p.  ^$. 


232  THE  STATE  TAX  COMMISSION 

tigation  that  were  provided  in  1908  it  became  possible  to  collect, 
classify,  and  distribute  an  immense  amount  of  useful  information 
to  the  local  assessors,  although  they  could  not  be  compelled  to 
make  use  of  it.  The  results  of  this  attempt  at  more  effective 
administration  of  the  general  property  tax  will  be  briefly  noted. 

The  first  effect  of  the  more  thorough  oversight  of  the  local 
assessment  was  a  fairly  rapid  increase  of  local  assessments  in  the 
state.  The  aggregate  rose  from  $3,512,000,000  in  1907  to  $4,769,- 
000,000  in  191 5.  To  what  extent  this  increase  represents  new 
taxable  property  which  was  discovered  and  listed  through  the 
supervisory  activities  of  the  tax  department,  and  to  what  extent 
it  represents  a  higher  valuation  of  property  formerly  Hsted,  it  is 
impossible  to  say. 

A  second  result  of  the  closer  supervision  has  been  the  increase 
in  the  proportion  of  personal  to  total  property  assessed.  This 
proportion  rose  from  21.8  per  cent  in  1907  to  25.1  per  cent  in 
191 5,  but  the  tax  commissioner  expressed  the  opinion  in  191 1 
that  the  proportion  of  moneys  and  credits  then  Hsted  for  taxation 
was  no  greater  than  in  1907.^  While  speaking  in  the  highest 
terms  of  the  supervisors  of  assessment,  he  admitted  their  failure 
to  secure  much  improvement  in  the  assessment  of  this  class  of 
property.2  Some  intangibles  were  of  course  included  in  the 
amounts  of  personal  property  returned  by  the  tax  dodgers  who 
were  migrating  to  the  small  towns  which  were  offering  special 
inducements  to  this  class  of  immigrants.  The  Special  Commis- 
sion on  Taxation  which  reported  in  191 6,  using  the  ratio  of  intan- 
gibles to  real  estate  in  a  large  number  of  cases  filed  with  the 
inheritance  tax  department  of  the  tax  commissioner's  office  and 
in  the  probate  court  of  Middlesex  County,  estimated  that  the 
amount  of  taxable  intangibles  was  1.25  times  the  amount  of  real 
estate.  In  19 14  this  gave  a  total  of  $4,335,000,000  of  taxable 
intangibles.  The  commission  regarded  $600,000,000  as  the  out- 
side estimate  of  the  amount  of  such  property  listed  for  taxation, 
and  considered  $550,000,000  a  fair  estimate.^ 

1  Massachusetts  Tax  Commissioner,  Report,  1911,  p.  11.    Cf.  ibid.,  1913,  pp.  8,  9. 

^  Ibid.,  1911,  pp.  12-15. 

'  Report  of  the  Commission  on  Taxation,  1916,  pp.  38-42,  57. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  233 

The  migration  of  tax  payers  into  those  tax  districts  of  the  state 
which  offer  the  greatest  advantages  in  low  tax  rates  and  moderate 
basis  of  assessment  has  been  a  matter  which  has  attracted  the 
attention  of  several  investigating  commissions.  The  commission 
of  1875  found  that  such  migration  had  begun,  even  at  that  time.^ 
The  commission  of  1897  pursued  the  inquiry  further  and  dis- 
covered that  eighteen  selected  towns,  with  a  combined  population 
of  only  62,529  had  returned  $52,570,721  out  of  the  $83,792,441  of 
intangible  personal  property  assessed  in  the  state,  outside  of 
Boston,  or  62.7  per  cent.  In  some  of  these  favored  towns  the  in- 
tangibles bore  the  relation  to  the  tangibles  of  sixteen  to  one.^ 
Investigation  of  the  distribution  of  intangibles  among  the  towns 
was  continued  by  the  Commission  on  Taxation  of  1908,  with  the 
result  of  demonstrating  a  still  more  serious  concentration  of 
personalty  in  certain  towns  than  had  been  revealed  in  the  earlier 
inquiries.  Excluding  merchandise,  Uve  stock,  and  machinery, 
29.6  per  cent  of  the  total  remaining  personalty  assessed  in  the 
state  outside  of  Boston  was  returned  in  1904  from  seventeen 
towns.  Fourteen  other  towns,  showing  a  less  degree  of  concen- 
tration, accounted  for  5.7  per  cent  more.  The  proportion  of 
tangibles  to  intangibles  in  the  first  group  of  seventeen  towns  was 
as  one  to  twenty-four,  in  the  second  group  as  one  to  six,  and  in 
the  other  towns  and  cities  of  the  state,  as  three  to  two.^  The 
efforts  at  more  stringent  administration  since  1908  have  stimu- 
lated this  migratory  movement.^ 

Finally,  there  has  been  some  tendency  for  the  property  that  has 
been  discovered  and  listed  to  disappear  from  the  tax  rolls  through 
removal  from  the  state  and  transference  into  exempt  investments. 
Evidence  of  the  extent  to  which  removal  from  the  state  has 
occurred  is  difficult  to  secure.  Professor  Bullock  accepts  the  esti- 
mate of  about  $100,000,000  for  1914.^  The  field  of  tax  exempt 
investments  was  widened  by  the  exemption  of  future  issues  of 

'  Report  of  I  he  Commission  on  Taxation,  1875,  PP-  ^^^  ff. 

*  Report  of  the  Commission  on  Taxation  of  Massachusetts,  1897,  pp.  50,  51. 
'  Report  of  the  Commission  on  Taxation,  1908,  pp.  40,  41. 

*  Bullock,  "  Taxation  of  Property  and  Income  in  Massachusetts,"  Quart.  Jour. 
Econ.,  xxxi,  pp.  36-40. 

*  Bullock,  loc.  cil.,  p.  35. 


234  ^^^  STATE  TAX  COMMISSION 

state,  county,  and  municipal  bonds  in  1906  and  1908.^  Short 
time  municipal  obligations  maturing  around  tax  day  came  into 
great  demand  and  the  quantity  of  non  taxable  corporation  stock 
issued  for  sale  in  Massachusetts  displayed  a  marked  increase.^ 
Meantime  the  agitation  for  further  tax  reform  continued,  and 
after  several  years  spent  in  discussing  various  projects,  an 
income-tax  law  was  passed  in  1916.^ 

The  Inheritance  Tax 

Though  the  inheritance  tax  was  adopted  in  Massachusetts  in 
1 891,'*  its  administration  imposed  no  duties  upon  the  tax  com- 
missioner until  1907.^  For  the  first  sixteen  years  the  state  treas- 
urer was  the  nominal  head  of  the  administration  of  this  tax,  but 
in  reaHty  the  local  courts  were  the  chief  administrative  agents. 
This  anomaly  did  not  escape  the  commission  of  1897,  but  that 
body  made  no  recommendations  for  a  transfer  of  authority  and 
even  pronounced  the  courts  to  be  the  most  convenient  and  effi- 
cient machinery  for  the  enforcement  of  the  law.^  In  1907  the 
whole  administration,  except  collection  of  the  taxes,  was  trans- 
ferred to  the  tax  commissioner  and  the  inheritance  tax  law  was 
broadened  so  as  to  apply  to  direct  as  well  as  to  collateral  inherit- 
ance. The  administrative  changes  of  1907  were  the  result  of  the 
recommendations  of  the  Joint  Special  Committee  of  1907,  which 
had  condemned  the  anomaly  of  holding  the  treasurer,  the  custo- 
dian of  public  funds,  responsible  for  the  assessment  of  a  tax.^ 
This  method  had  not  only  been  anomalous,  it  had  been  wasteful. 
In  1906  the  treasurer  had  obtained  an  extraordinary  appropria- 
tion of  $1000  and  in  eight  months  his  agents  had  discovered 
unpaid  inheritance  taxes  amounting  to  $71,000.*    The  need  for 

*  State  bonds  were  exempted  by  Laws  of  Massachusetts,  1906,  ch.  493.  County 
bonds  were  exempted  by  ch.  464,  and  municipal  bonds  by  ch.  594,  of  the  laws  of 
1908. 

^  Bullock,  loc.  cil.,  pp.  43-44.  ^  Cf.  below,  pp.  235,  236. 

*  Laws  of  Massachusetts,  1891,  ch.  425. 

*  Ibid.,  1907,  ch.  563;  amended  by  ibid.,  1909,  ch.  268. 

*  Report  of  the  Commission  on  Taxation  of  Massachusetts,  1897,  pp.  24,  25,  97. 
^  Report  of  the  Joint  Special  Committee  on  Taxation,  1907,  p.  20. 

®  Ibid.,  p.  22. 


TAX  COMMISSIONER  OF  MASSACHUSETTS  235 

greater  administrative  vigilance  was  recognized  in  the  com- 
mittee's recommendation  for  the  creation  of  an  inheritance  tax 
bureau  in  the  state  tax  department,  to  be  in  charge  of  an  inherit- 
ance tax  assessor  under  the  direction  of  the  tax  commissioner. 

The  combined  effect  of  the  taxation  of  direct  inheritances  and 
of  more  vigorous  administration  has  been  a  marked  increase  in 
the  receipts  from  the  tax.  The  collections  rose  from  $357,523,000 
in  1908  to  $2,277,832  in  1914.  This  very  significant  fiscal  growth 
has  been  paralleled  by  the  rising  importance  of  the  inheritance 
tax  bureau  as  the  clearing  house  of  information  upon  the  owner- 
ship of  property  in  the  state.  An  act  of  191 5  made  possible  the 
settlement  of  estates  within  -One  year  ^  and  the  collections  for 
this  year  rose  to  $2,487,320.  The  tax  commissioner  regarded  this 
increase  as  abnormal,  and  the  result  of  the  enforced  settlement  of 
pending  cases  occasioned  by  the  new  law.  He  expressed  some 
fear,  also,  that  the  decision  of  the  courts  whereby  joint  tenancies, 
and  the  property  passing  to  a  surviving  joint  tenant  were  held 
not  to  be  subject  to  the  tax,  would  impair  its  productiveness,  in 
view  of  the  increasing  popularity  of  this  form  of  joint  holding.^ 

The  Income  Tax 

The  history  of  the  discussion  and  agitation  which  led  up  to  the 
Massachusetts  income  tax  law  of  1916^  has  so  recently  been  told 
by  Professor  Bullock  that  it  need  not  be  repeated.  The  law  went 
into  operation  in  191 7,  and  only  a  very  brief  account  of  it  will  be 
given  here. 

The  Massachusetts  income  tax  law  provides  a  tax  of  6  per  cent 
on  the  income  from  taxable  intangibles,  which  are  henceforth  to 
be  exempt  from  local  taxation.  With  this  is  incorporated  the  older 
tax  on  the  income  from  annuities,  professions,  employment, 
trade  and  business.  These  incomes  are  to  be  taxed  at  i|  per  cent. 
As  the  act  goes  into  operation  advantage  will  be  taken  of  the 
opportunity  to  secure  a  better  assessment  of  tangible  personalty, 
by  the  provision  that  no  taxpayer  may  secure  a  reduction  of  his 

*  Laws  of  Massachusetts,  1915,  ch.  152. 

^  Massachusetts  Tax  Commissioner,  Report,  191 5,  p.  15. 

^  Laws  of  Massachusetts,  1916,  ch.  269. 


236  THE  STATE  TAX  COMMISSION 

taxable  personalty  in  191 7  below  the  amount  for  which  he  was 
taxable  in  1916,  without  making  a  sworn  return  of  his  taxable 
property.  It  is  expected  that  this  provision  will  open  up  the  way 
to  a  much  better  assessment  of  the  forms  of  property  that  remain 
subject  to  local  taxation.  If  the  experience  of  Wisconsin  may  be 
taken  as  a  guide,  the  income  tax  assessors  will  prove  valuable 
aids  in  the  administration  of  the  tax  on  property  and  the  general 
administration  of  the  tax  system. 

The  influence  of  the  Wisconsin  measure  is  seen  in  the  adminis- 
trative provisions.  The  tax  commissioner  is  in  general  charge, 
with  a  deputy  provided  by  the  act  to  be  in  charge  of  the  income 
tax.  The  commissioner  appoints  this  deputy,  and  also  the  income 
tax  assessors,  together  with  such  deputy  income  tax  assessors  as 
may  prove  necessary.  The  tax  commissioner  is  also  to  designate 
the  income  tax  districts  and  assign  the  assessors  whom  he  has 
chosen  to  these  districts,  giving  preference,  where  practicable,  to 
residents  of  the  districts  in  his  appointments.  He  is  left  perfectly 
free,  however,  to  make  such  shifts  in  the  appointees  assigned  to 
the  various  districts  as  he  considers  to  be  desirable.  The  act 
provides  for  information  at  the  source  in  certain  cases,  and  the 
tax  commissioner  is  to  prescribe  the  forms  and  conditions  under 
which  these  returns  are  to  be  made.  Throughout  the  act  displays 
confidence  in  the  tax  commissioner  and  he  is  given  virtually  free 
rein  in  planning  the  organization  of  income  tax  assessment.  It  is 
especially  fortunate  that  a  progressive  position  was  taken  on  the 
question  of  administration,  because  recent  experience  has  re- 
vealed how  very  important  efficient  central  administration  is 
for  the  success  of  an  income  tax.  There  is  every  prospect  that  the 
Massachusetts  law  will  prove  successful. 


CHAPTER  VIII 

THE  STATE  TAX  COMMISSION  OF  WISCONSIN 

The  history  of  taxation  in  Wisconsin  ^  illustrates,  in  a  peculiarly 
interesting  way,  the  typical  evolution  of  state  control  over  taxa- 
tion. For  this  reason  the  historical  antecedents  of  the  tax 
commission  will  be  very  briefly  outlined. 

Complete  administrative  decentralization  in  the  tax  system 
prevailed  throughout  the  territorial  period,  during  which  the 
general  property  tax  was  slowly  developing ;  it  was  characteristic 
also  of  the  first  general  assessment  law  of  the  new  state,  passed  in 
1849,  ^  which  chief  reliance  for  full  returns  was  placed  upon  tax- 
payers' oaths. 2  So  great  were  the  objections  to  the  results  thus 
obtained,  however,  that  a  state  board  of  equalization  was  estab- 
lished in  1852.^  The  original  board  consisted  of  the  governor, 
secretary,  treasurer,  attorney-general,  and  superintendent  of 
public  instruction ;  the  lieutenant-governor  and  the  bank  comp- 
troller were  added  in  1854.  Four  years  later  the  function  of  state 
equalization  was  transferred  to  a  board  consisting  of  the  secretary 
of  state  and  the  state  senate.  In  favor  of  this  change  it  was  urged 
that  the  larger  board  would  be  more  representative;  but  the  real 
work  of  equalization  was  delegated  to  a  committee  which  per- 
formed its  task  in  the  fear  that  insistence  upon  strict  justice 
would  mean  the  total  defeat  of  its  recommendations.*  The 
continuance  of  local  undervaluation  led,  a  decade  later,  to  the 
substitution  of  an  independent  state  assessment  for  the  state 
equalization  of  local  returns.*  The  latter  had  become  so  untrust- 
worthy that  even  if  a  careful  state  equaUzation  could  have  been 
made,  it  would  still  have  been  thoroughly  unreliable.  The  inde- 
pendent state  assessment  was  made  by  the  board  of  equalization, 

1  Cf.  Phelan,  The  Financial  History  of  Wisconsin,  1908. 

*  Revised  Statutes  of  Wisconsin,  1849,  ch.  15. 
3  Laws  of  Wisconsin,  1852,  ch.  498. 

*  Phelan,  op.  cit.,  p.  149.  '  Laws  of  Wisconsin,  1868,  ch.  130. 

237 


238 


THE  STATE  TAX  COMMISSION 


now  termed  the  "  state  board  of  assessment,"  upon  the  basis  of 
statistics  of  population  and  wealth  collected  by  the  secretary  of 
state.  Local  undervaluation  became  thereafter  of  little  avail  so 
far  as  the  state  tax  was  concerned,  except  as  a  low  return  might 
possibly  have  influenced  the  board  in  the  state  assessment.  But 
the  increasing  burden  of  local  expense  afforded  sufficient  induce- 
ment for  the  continuance  of  the  practice  without  abatement.^ 
In  1873  the  state  board  of  assessment  was  reorganized  by  sub- 
stituting the  treasurer  and  attorney-general  for  the  senate.^  This 
change  was  made  necessary  by  the  natural  inefficiency  of  the 
large  administrative  body;  but  the  smaller  ex  oj6&cio  board  dis- 
played little  aptitude  or  inclination  for  the  state  assessment, 
which  had  degenerated  by  the  middle  of  the  nineties  into  an 
empty  form,  productive  of  only  mischievous  results.  The  follow- 
ing figures  reveal  the  situation: 

State  and  Local  Assessment  of  Property  in  Wisconsin,  1890-99  ^ 

(millions) 


Year 

State 

Local 

Year 

State 

Local 

Year 

State 

Local 

1890 

$623.8 

$579.8 

1894 

$600.0 

$632.6 

1897 

$600.0 

$628.5 

1891 

654.0 

591.0 

1895 

600.0 

633-3 

1898 

600.0 

630.7 

1892 

654.0 

602.4 

1896 

600.0 

629.7 

1899 

625.0 

648.0 

1893 

654.0 

624.7 

The  state  assessment  had  certainly  become  an  extremely  lifeless 
process.  For  five  consecutive  years  a  flat  level  was  struck  which 
was  lower  than  that  achieved  by  the  local  assessors  with  all  their 
competitive  struggle  for  low  valuations. 

The  early  experiences  in  corporate  taxation  were  equally 
unsatisfactory.  Special  taxation  of  railroads  was  introduced  in 
1854  in  the  enactment,  in  lieu  of  all  other  taxes,  of  a  tax  of  i  per 
cent  upon  the  gross  earnings  of  railroad  and  plank  road  com- 
panies.^ This  tax  was  held  unconstitutional  in  i860  as  a  violation 

'  Cf.  Report  of  the  Wisconsin  State  Tax  Commission,  1898,  pp.  75-80. 
^  Laws  of  Wisconsin,  1873,  ch.  235. 

'  The  state  assessment  of  one  year  is  to  be  compared  with  the  local  assessment 
of  the  preceding  year. 

*  Laws  of  Wisconsin,  1854,  ch.  74. 


TAX  COMMISSION  OF  WISCONSIN  239 

of  the  rule  of  uniformity;  but  the  legislature  in  the  same  year 
provided  for  a  license  tax  of  i  per  cent  levied  upon  gross  earnings 
and  exempted  these  companies  from  all  other  taxation. ^ 

The  early  favoritism  toward  railroads  waned  rapidly  in  Wiscon- 
sin and  the  demand  became  increasingly  insistent  for  more  uni- 
form taxation,  by  which  was  meant  chiefly  greater  taxation  of  the 
railroads.  In  response  to  this  pressure  the  rate  of  the  license  tax 
was  several  times  altered  and  in  1876  there  was  introduced  a 
system  of  classification  on  the  basis  of  gross  earnings  per  mile, 
with  a  different  rate  for  each  class. ^ 

Defective  administration  proved  to  be  the  bane  of  the  gross 
earnings  tax  in  Wisconsin.^  Originally  the  only  official  in  charge 
of  the  tax  was  the  state  treasurer,  who  received  the  sworn  returns 
of  gross  earnings  from  the  railroad  officials  and  issued  the  annual 
license  upon  the  payment  of  the  "  fee  "  or  tax.  After  1876  the 
returns  were  made  to  the  railroad  commissioner  who  was  sup- 
posed to  verify  the  statements  of  the  railroad  companies.^  In 
1889  this  ofl&cial  was  given  extensive  powers  of  inquiry  into  the 
details  of  the  business  and  the  right  of  withholding  the  license 
until  satisfactory  information  was  forthcoming;  but  owing  to 
lack  of  "  funds,  office  force,  time,  and  desire  "  these  large  powers 
were  not  generally  exercised  and  the  railroads  continued  virtually 
to  make  their  own  assessment.^  The  special  tax  commission  of 
1898  decided  that  the  corporations  taxed  under  the  gross  earnings 
plan  were  paying  relatively  less  taxes  than  other  classes  of  tax- 
payers, and  less  than  they  would  on  the  ad  valorem  basis.^  This 
commission  was  unwilUng  to  recommend  specific  changes,  but 
suggested  a  more  thorough  examination  of  the  subject  by  a  com- 
mittee equipped  with  larger  powers.  The  next  year  the  railroads 
seized  upon  this  suggestion  in  order  to  defeat  a  bill  providing  for 
an  advance  in  the  rate  and  the  abandonment  of  classification,  on 
the  ground  that  a  problem  of  such  far-reaching  importance  could 

^  KnowUon  v.  Supervisors,  9  Wis.  379.     Laws  of  Wisconsin,  i860,  ch.  173. 

*  Ibid.,  1876,  ch.  97. 

'  Snider,  Taxation  of  Gross  Receipts  in  Wisconsin,  ch.  3. 

*  The  office  was  created  by  Laws  of  Wisconsin,  1876,  ch.  57. 
'  Snider,  op.  cit.,  p.  30. 

*  Report  of  the  Wisconsin  State  Tax  Commission  of  i8g8,  pp.  135,  183. 


240  TEE  STATE  TAX  COMMISSION 

be  handled  only  by  experts.^  The  legislature  accepted  the  de- 
mand of  the  railroads  and  provided  for  a  tax  commission ;  but  in 
its  establishment  counsel  was  taken  of  the  commission  of  1898  as 
well  as  of  the  railroads  and  every  feature  of  the  former's  recom- 
mendations relative  to  centralized  supervision  of  the  tax  system 
was  incorporated.^  In  consequence  there  emerged  in  Wisconsin 
in  1899  a  well  organized  tax  department,  provided  with  super- 
visory authority  over  the  general  tax  system  and  charged  with 
the  particular  duty  of  investigating  corporate  taxation.^  The 
results  of  this  special  investigation  proved  very  unwelcome  to  the 
railroads  as  will  later  be  seen.* 

The  new  tax  department  consisted  of  one  commissioner  and 
two  assistant  commissioners,  to  be  appointed  by  the  governor  for 
a  term  of  ten  years  at  a  salary  of  $5000  for  the  commissioner  and 
$4000  for  each  of  the  assistants.  All  of  the  appointees  were  to  be 
persons  known  to  possess  skill  and  knowledge  in  matters  per- 
taining to  taxation.  That  the  law  should  have  included  the  super- 
visory feature  at  this  time  is  significant,  for  but  two  other  states 
—  Indiana  and  Massachusetts  —  had  then  introduced  adminis- 
trative reform  of  this  sort.^  The  tax  commissioner  was  to  act  as 
president  of  the  state  board  of  assessment  and  as  a  member  of 
this  body  he  was  to  lay  before  it  any  data  in  his  possession  which, 
in  his  judgment,  would  be  of  assistance  in  its  deHberations. 

In  1 90 1  the  legislature  sought  to  aboHsh  the  old,  and  now  more 
than  useless  ex  officio  state  board  of  assessment,  and  to  transfer  its 
functions  to  the  new  tax  department.  The  probable  intent  was  to 
transfer  to  the  commission  all  of  the  powers  and  duties,  as  well  as 
the  title,  of  the  former  board;  but  this  design  was  not  accom- 
plished through  the  failure  to  extend,  specifically,  the  authority 
of  the  commission  to  cover  the  assessment  of  express,  sleeping 
car,  freight  fine  and  equipment  companies,  a  power  which  had 
been  conferred  upon  the  old  board  in  1899.^  The  failure  to  repeal 

1  Phelan,  op.  ciL,  pp.  386,  387. 

2  The  recommendation  is  in  the  Commission's  Report,  p.  183. 

3  Laws  of  Wisconsin,  1899,  ch.  206.  *  Cf.  below,  pp.  257  ff. 
^  The  Massachusetts  law  of  1898  was  quite  ineffective. 

«  Wisconsin  Tax  Commission,  Report,  1901,  p.  167;  Laws  of  Wisconsin,  1899, 
chs.  111-114. 


TAX  COMMISSION  OF  WISCONSIN  24 1 

or  modify  the  provisions  just  referred  to,  or  even  to  mention  these 
duties  at  all,  resulted  in  a  continuance  of  the  former  board  for  the 
purposes  of  this  assessment;  but  the  state  assessment  was  there- 
after made  by  the  tax  commission.  In  1903  it  was  placed  in 
charge  of  all  ad  valorem  taxes  on  corporations  and  the  old  state 
board  was  aboHshed.^  In  this  year  the  gross  earnings  tax  on 
railroads  was  abandoned  for  an  ad  valorem  system,  the  adminis- 
tration of  which  was  also  given  to  the  tax  commission. ^  The  ad 
valorem  system  was  extended  to  the  electric  railroads  and  tele- 
graph companies  in  1905,^  at  which  time  the  tax  department  was 
reorganized  as  a  permanent  tax  commission  with  three  members 
of  equal  rank,  appointed  by  the  governor  for  a  term  of  eight 
years  at  a  salary  of  $5000  per  year.'*  Finally,  in  1909,  the  legisla- 
ture abolished  the  title  "  State  Board  of  Assessment "  since  all 
of  the  duties  of  that  board  had  been  vested  in  the  tax  commis- 
sion.* Thereafter  the  state  assessment  was  to  be  regarded  in  the 
law,  as  it  had  long  been  in  fact,  simply  as  one  of  the  functions  of 
the  tax  commission. 

The  more  important  duties  of  this  body  at  present  are  the 
following,  each  of  which  will  now  be  discussed  in  detail. 
The  state  assessment; 
The  assessment  of  the  property  of  corporations  taxed  under 

the  ad  valorem  system; 
Supervision  of  the  local  assessment  of  property  tax  under 

general  laws; 
Administration  of  the  income  and  inheritance  taxes; 
Investigation   of   public   expenditures   and   supervision   of 

municipal  accounting; 
Recommendation  of  improvements  and  reforms  in  taxation 
to  the  legislature. 

The  State  Assessment 

In  the  theory  of  the  Wisconsin  law  the  state  assessment  is  an 
original  assessment  by  state  officers,  according  to  the  best  of  their 

^  Laws  of  Wisconsin,  1903,  ch.  35.  *  Ibid.,  ch.  380. 

'  Ibid.,  1905,  ch.  315.  *  Ibid.,  1909,.  ch.  295. 

'  Ibid.,  1905,  chs.  493,  494. 


.242  THE  STATE  TAX  COMMISSION 

ability  and  judgment,  of  all  property  in  each  county  subject  to 
taxation.  Practically,  this  assessment  is  based,  even  by  the  tax 
commission,  largely  upon  the  work  of  the  local  officials  and 
the  chief  significance  of  the  administrative  change  lies  in  the 
thoroughness  and  rigor  with  which  these  returns  are  checked  and 
corrected.  The  results  obtained  by  the  former  state  board  of 
assessment  in  its  later  years  have  already  been  noted;  and  the 
effect  of  the  administrative  reorganization  may  be  seen  in  the 
very  significant  increases  which  were  immediately  made  in  both 
state  and  local  assessments,  and  especially  in  the  former.  By 
1902  the  local  figures  had  risen  to  $1,369,800,000,  and  the  state 
figures  to  $1,504,300,000.  The  principal  device  employed  by  the 
commission  for  securing  these  results  in  the  state  assessment  of 
real  estate  was  the  sales  method,  or  the  calculation  of  a  construc- 
tive full  value  of  all  real  estate  by  applying  to  the  aggregate 
actual  assessment  the  ratio  of  assessed  to  true  value  in  the  bona 
fide  sales  of  real  estate  during  a  given  period.  This  principle  was 
not  new,  but  the  Wisconsin  application  of  it  is  worthy  of  extended 
description  as  it  is  undoubtedly  the  most  important  example  of 
the  attempts  which  are  now  being  made  to  test  and  check  up 
local  valuations  in  a  scientific  manner. 

The  use  of  the  sales  method  is  attended  by  some  dangers,  but 
before  stating  more  fully  the  qualifications  and  cautions  which 
must  be  borne  in  mind  in  applying  the  principle,  a  brief  outHne  of 
the  actual  machinery  will  be  useful  as  it  will  reveal  some  of  the 
points  at  which  extreme  care  must  be  exercised  in  the  collection 
and  use  of  sales  data. 

The  raw  material  for  the  construction  of  the  sales  ratios  con- 
sists of  the  essential  facts  concerning  the  transfers  of  real  property 
during  a  certain  period.  When  the  Wisconsin  tax  commission 
first  undertook  the  use  of  the  sales  method  it  found  an  immense 
mass  of  the  crude  data  ready  at  hand.  Since  1873  local  registrars 
of  deeds  had  been  required  to  return  to  the  secretary  of  state  the 
facts  regarding  the  transfers  of  real  estate.^  These  statements, 
which  excluded  sales  for  obviously  nominal  considerations, 
presented  the  following  facts  for  each  sale : 

^  Laws  of  Wisconsin,  1873,  ch.  210. 


TAX  COMMISSION  OF  WISCONSIN  243 

The  date  of  conveyance ; 

A  short  description  with  statement  of  the  quantity  of  land 

conveyed ; 
The  consideration,  as  stated  in  the  deed ; 
The  assessed  valuation  of  the  property  as  shown  by  the  last 

assessment  roll. 

Before  being  acceptable  for  the  purpose  in  hand  the  materials 
returned  under  this  law  had  to  be  most  thoroughly  scrutinized  in 
order  to  discover  and  eliminate  inaccuracies.  Three  principal 
points  of  danger  were  met  from  the  outset :  ^  nominal  considera- 
tions; lack  of  exact  coincidence  between  the  property  sold  and 
the  property  assessed;  and  the  statement  in  the  deed  of  a  higher 
or  a  lower  consideration  than  that  actually  paid.  The  errors  from 
these  sources  would  vary,  of  course,  with  the  carelessness  of  the 
reporting  officials  and  much  of  the  material  accumulated  before 
1900  was  doubtless  of  little  value.  Since  that  time  the  commis- 
sion's insistence  upon  greater  accuracy  has  had  beneficial  results. 
In  1907  further  guarantee  of  accuracy  in  the  returns  was  afforded 
by  investing  the  tax  commission  with  power  to  collect  sales  data 
through  its  own  special  agents. ^  Supervision  of  these  agents  and 
compilation  of  the  data  are  now  under  the  direction  of  the 
statistical  department  of  the  tax  commission.  The  special  agents 
are  trained  by  an  experienced  collector  of  sales  material,  and  for 
their  guidance  in  the  field  they  are  equipped  with  an  elaborate 
set  of  instructions  and  suggestions.^ 

The  system  of  collecting  and  recording  the  various  facts  attend- 
ing each  transaction  is  complicated  and  a  detailed  description  is 
hardly  necessary.  Some  points  may  be  abridged  from  the  book 
of  instructions  which  will  illustrate  the  method  of  collection  and 
the  care  used  in  eliminating  errors.  The  work  is  divided  into  two 
parts:  the  first  is  the  office  work,  by  which  is  meant  the  searching 
of  the  county  archives  and  the  collection  of  such  data  as  may  be 

1  Wisconsin  Tax  Commission,  Report,  1901,  pp.  44  ff. 

2  Laws  of  Wisconsin,  1907,  ch.  522. 

'  In  191 1  these  instructions  occupied  43  typewritten  pages.  Much  of  the  work 
of  collecting  sales  data  is  now  done  by  the  assessors  of  income.  Wisconsin  Tax 
Commission,  Report,  1916,  p.  6. 


244  ^^^  STATE  TAX  COMMISSION 

obtained  from  the  records;  the  second  is  the  field  work,  which 
consists  in  ascertaining  the  facts  from  such  persons  as  may  pos- 
sess information  relative  to  particular  transfers.  By  the  use  of 
symbols  a  complete  history  of  each  transaction  is  entered  on  a 
small  card  which  is  forwarded  to  the  tax  commission.  In  the 
course  of  the  ofiice  work  certain  tests  are  applied  to  every  trans- 
fer Hsted,  which  may  reveal  the  impossibiHty  of  using  the  sale  in 
question.  Every  transfer  which  is  used  in  the  final  calculation 
must  meet  certain  rigid  requirements.^  The  first  of  these  is  that 
a  full  title  must  be  transferred.  This  test  excludes  sheriffs'  sales, 
foreclosures,  administrators',  executors',  trustees',  guardians', 
referees',  receivers',  and  assignees'  deeds,  quitclaims  and  a  variety 
of  similar  conveyances  in  which  the  title  is  not  fully  warranted. 
A  second  condition  is  that  there  must  be  exact  coincidence  of 
property  assessed  and  property  sold.  Under  this  test  would  be 
excluded  payments  in  fulfillment  of  land  contracts,  sales  includ- 
ing large  amounts  of  personal  property,  and  cases  in  which  build- 
ings have  been  erected  or  destroyed  since  the  sale.  The  third 
important  requirement  to  be  met  is  the  absence  of  indisputably 
or  unmistakably  abnormal  conditions.  Examples  of  possibly 
abnormal  transactions  are  sales  of  right  of  way,  sales  to  brewers 
for  saloon  purposes,  sales  to  farmers  of  adjoining  tracts  for  special 
reasons,  and  similar  transactions.  These  are  always  scrutinized 
closely  for  abnormal  features.  Finally,  the  true  purchase  price 
must  be  stated  in  terms  of  money,  or  in  terms  easily  and  safely 
convertible  into  money.  This  criterion  would  exclude  trades, 
sales  to  relatives,  nominal  sales,  the  existence  of  a  mortgage, 
back  taxes,  or  other  lien  of  unknown  amount,  and  other  transfers 
affected  by  material  reservations  and  restrictions.  If  the  trans- 
fer passes  all  of  these  tests,  the  field  agent  visits  one  of  the  parties 
to  the  sale  or  the  notary  who  acknowledged  the  deed  and  obtains 
the  facts  concerning  each  transaction.  Should  any  doubtful 
cases  arise,  or  should  any  person  conversant  with  the  facts  prove 
reluctant  to  disclose  his  information,  the  case  is  reported  to  the 
tax  commission,  from  whose  oflS.ce  a  confidential  inquiry  is  sent 

1  T.  S.  Adams,  "  The  Valuation  of  Real  Estate  in  Wisconsin,"  Proceedings  of 
the  Minnesota  Academy  of  Social  Sciences,  1907,  pp.  79-104. 


TAX  COMMISSION  OF  WISCONSIN  245 

out.  This  resort  failing,  the  transfer  is  excluded  from  considera- 
tion in  computing  the  ratio.'  The  new  assessors  of  incomes  have 
been  of  valuable  service  in  criticizing  and  editing  the  sales 
statistics.  Their  familiarity  with  local  conditions  has  given  them 
an  advantage  in  the  investigation  of  actual  considerations  and 
the  expense  of  the  collection  of  sales  data  has  been  somewhat 
lessened. 2 

The  data  secured  by  the  field  agents  are  again  submitted  to 
careful  scrutiny  in  the  central  office  where,  for  various  reasons, 
further  eUminations  are  usually  made.  From  the  accepted  cases 
a  compilation  is  made  of  sales  values  and  assessed  valuations  for 
each  assessment  district  (about  1700)  in  the  state,  and  the  ratio 
of  assessed  to  true  value  is  computed.^  Some  idea  of  the  amount 
of  material  available  for  this  purpose  may  be  had  from  the  fact 
that  the  total  number  of  acres  sold  in  the  state  in  the  years  1901 
and  1902,  exclusive  of  plotted  lands  in  cities  and  villages,  was 
3,645,288,  equivalent  to  more  than  12  per  cent  of  the  entire  acre- 
age of  the  state.*  The  total  acreage  of  the  transfers  of  the  period 
1895-99  was  7,710,356.5 

The  tests  which  have  been  developed  to  discover  and  eliminate 
the  abnormal  transactions  have  been  steadily  improved,  and 
though  they  are  not  infallible  either  as  to  exclusion  or  inclusion, 
they  have  reached  a  high  pitch  of  perfection.  Through  their  use 
the  sales  method  has  been  made  a  very  effective  mechanism  for 
ascertaining  the  relation  of  assessed  to  true  value.  The  depend- 
ence of  an  accurate  ratio  upon  this  vigilance  is  illustrated  by  the 

^  The  commission  estimates  that  about  60  per  cent  of  the  sales  collected  are  used. 

^  Wisconsin  Tax  Commission,  Repoil,  1912,  p.  11. 

'  The  original  plan  was  to  take  the  average  ratio  for  the  preceding  quinquennial 
period  in  order  to  minimize  any  unusual  fluctuations  in  a  single  year.  The  quin- 
quennial average  naturally  lags  behind  present  values  on  a  rising  market,  and  for 
this  reason  the  commission  has  abandoned  it.  The  larger  number  of  transactions 
now  available  permits  greater  reliance  upon  a  shorter  period.  Moreover,  the  local 
assessors  have  been  improving  so  much  in  the  assessment  of  real  estate  since  the 
income  tax  assessors  began  to  supervise  local  assessments,  that  in  some  cases  they 
were  attaining  percentages  of  full  value  equal  to  or  above  the  commission's  quin- 
quennial average  ratios.  Personal  Letter  from  A .  E.  James,  Statistician,  Feb.  24, 
1914. 

*  Wisconsin  Tax  Commission,  Report,  1903,  p.  15. 

*  Ibid.,  1901,  p.  48. 


246  THE  STATE  TAX  COMMISSION 

following  figures,^  showing  the  variation  in  ratios  computed  from 
sales  rejected  for  various  reasons. 

Causes  of  Sales  Rejection  for  Year  ending  April,  1909,  compared  with 

Good  Sales,  and  Ratio  of  Assessment  to  Consideration, 

IN  Three  Counties 

Number  of  sales  Ratio 

Total  good  sales i,4S3  57-87 

Total  rejects 1,081 

Total  comparable  rejects 566  5i-73 

Non-comparable  rejects 

Trades,  relatives,  partners,  estates 235  41-73 

Land  contracts 67  79-49 

Relatives,  partners,  estates 118  67.95 

Security  for  loan 15  88.04 

Non-resident,  "  sucker  sales " 20  32.93 

The  ratio  which  would  have  been  obtained  by  the  use  of  the 
comparable  rejects  would  not  have  been  far  from  that  actually 
obtained  from  the  good  sales.  It  would  still  have  been  nearer  the 
truth,  probably,  than  any  result  that  the  commission  could  have 
reached  without  the  use  of  the  sales  method;  but  these  sales  were 
excluded  from  the  ratio.  The  wide  fluctuations  of  the  ratios  for 
the  other  classes  of  rejects  reveal  the  dangers  which  would  attend 
their  use,  and  emphasize  the  extreme  care  that  is  necessary  to 
eliminate  them. 

Two  obvious  lines  of  criticism  have  been  raised  against  this 
method  of  testing  local  valuations.  The  commission  has  met  these 
objections  successfully,  but  it  does  not  therefore  regard  the  ratios 
as  absolutely  final.  Rather,  they  are  considered  as  one  of  the 
most  important  indicia  of  the  true  condition  of  local  assessments, 
but  their  results  will  be  rejected  whenever  they  are  palpably  out 
of  accord  with  the  facts. 

The  first  criticism  is  that  the  data  are  not  accurate.  This  objec- 
tion would  have  been  much  more  valid  previous  to  1907  than  it 
has  been  since  the  tax  commission  has  had  the  close  and  direct 
supervision  of  the  collection  of  the  sales  data.  The  income  tax 
assessors  have  undoubtedly  contributed  to  a  still  more  rigorous 
elimination  of  improper  material.    The  rigid  tests  which  have 

^  T.  S.  Adams,  "  Address  before  the  Ninth  Annual  Meeting  of  the  Supervisors 
of  Assessment,"  1910,  Proceedings,  p.  14. 


TAX  COMMISSION  OF  WISCONSIN  247 

already  been  developed  have  excluded  many  of  the  untrust- 
worthy stated  considerations.  Further,  the  calculation  of  the 
ratio  from  the  sales  of  an  entire  assessment  district  tends,  through 
compensation,  to  eliminate  such  errors  as  may  have  escaped 
detection.  The  discrepancy  between  the  ratio  calculated  from 
the  results  of  the  office  work  alone,  and  that  based  upon  field  and 
office  work  together  in  1910  was  less  than  7^  per  cent  for  the  state 
as  a  whole,  while  for  individual  counties  the  highest  difference 
was  less  than  2  per  cent.^ 

The  railroads  vigorously  opposed  the  results  obtained  by  the 
commission  and  undertook  extensive  independent  investigations 
to  estabhsh  their  insufficiency.  This  criticism  was  aimed  at  the 
accuracy  of  the  data  rather  than  at  the  method  of  compilation. 
Railroad  agents  went  into  several  counties  and  sought  to  demon- 
strate the  questionable  character  of  a  considerable  proportion  of 
the  returns  to  the  commission.  The  latter  was  willing  to  concede 
at  the  outset  the  possibility  of  error  in  the  returns  from  the  local 
officials,  but  its  principal  conclusions  remained  unshaken.  The 
attack  served  the  useful  purpose,  however,  of  stimulating  greater 
care  in  the  preparation  and  use  of  the  data.  The  opposition  of  the 
railroads  to  the  sales  method  has  since  practically  disappeared. 
That  this  is  not  a  surrender  to  the  inevitable  is  shown  by  the  fol- 
lowing endorsement  of  the  method  by  one  of  the  railroad  repre- 
sentatives who  had  appeared  against  the  system  in  1902-03:  ^ 

I  am  not  going  into  a  discussion  of  the  reasons  why  the  use  of  land  sales 
is  the  best  and  most  practicable  method  for  ascertaining  the  true  value  of 
taxable  real  estate,  but  I  will  say  that  after  nearly  six  years  of  pretty  con- 
stant investigation  of  the  problem,  it  is  my  belief  that,  with  all  of  its  im- 

'  T.  S.  Adams,  Ibid.,  p.  91. 

«  T.  A.  Polleys,  Tax  Commissioner  of  the  C.  M.  St.  P.  &  Omaha  R.R.,  "  Re- 
marks at  Ninth  Annual  Meeting  of  the  County  Supervisors,"  1910,  Proceedings, 
p.  89.  The  speaker  discussed  also  his  experiments  with  the  system  in  St.  Paul  and 
in  Wisconsin  counties,  and  again  endorsed  it  as  practicable  and  satisfactory.  The 
keen  interest  of  the  railroad  companies  in  the  sales  methods  and  its  results  lies  in 
the  fact  that  the  aggregate  true  value  calculated  from  these  percentages  is  used  in 
determining  the  average  rate  of  taxation  in  the  state,  the  rate  at  which  the  rail- 
roads are  taxed.  For  a  criticism  of  the  sales  method  in  valuing  railroad  right  of 
way,  cf.  Sakolski,  "  The  Valuation  of  Railroad  Right  of  Way,"  Amer.  Econ.  Rev., 
vi,  pp.  300-303,  June,  1916.    Cf.  also  note  2,  p.  249,  below. 


248  THE  STATE  TAX  COMMISSION 

perfections  —  and  it  has  its  imperfections  —  with  all  its  shortcomings  the 
process  of  the  use  of  land  sales  is  the  best  available  process  you  have  today 
to  work  out  this  problem  of  the  true  value  of  taxable  real  estate  in  your 
county. 

The  second  criticism  of  the  sales  method  is  that  the  ratio  is  not 
a  proper  guide  because  the  pieces  of  real  estate  transferred  in  any 
district  may  not  be  thoroughly  representative  of  all  classes  of 
real  property  in  the  district.  To  this  objection  the  conunission 
offers  the  defense,  based  on  the  laws  of  probability,  that  the  pre- 
dominance of  a  certain  class  of  real  property  in  the  data  will  not 
vitiate  the  result  unless  the  assessment  of  that  class  has  been 
abnormal  as  compared  with  the  district  as  a  whole.  Further,  if 
there  has  been  abnormal  assessment  of  any  class  of  property,  that 
fact  is  of  Httle  consequence  unless  this  class  were  seriously  mis- 
represented in  the  sales.  The  probability  of  the  occurrence  of 
this  combination  of  disturbing  factors  within  any  assessment 
district  is  very  small  and  the  tests  made  by  the  commission  show 
that  the  objection  is  not,  on  the  whole,  as  serious  as  might  at 
first  appear.  The  results  of  one  of  these  tests  of  the  sales  data  are 
herewith  given. 

Average  Value  per  Acre  in  Bear  Lake  Town  ^ 

Assessed  value  Calculated  true  value  shown  by 

Abstract  of  Assessment         Total  acres  into         Consideration 

Period  assessment  of  sales  total  value  of  sales 

Average  1904-08 .  $9.09  $9.04  $17.46  $17.63 

1904 8.98  9.08  16.97  17-15 

1905 9-03  9-34  16.72  17.30 

1906 9.26  8.59  16.50  15.48 

1907 9.11  9.09  17.61  17-57 

1908 9.16  9.21  19.49  19-57 

The  first  two  columns  show  the  assessment  of  the  district  and  for 
those  parcels  which  were  sold  during  the  periods  in  question.  In 
this  instance,  at  least,  the  assessed  value  of  the  transferred  por- 
tions were  representative  of  the  assessment  as  a  whole.  The  third 
column  gives  the  average  value  per  acre  for  the  county,  obtained 
by  dividing  total  acres  into  total  value.  Comparing  with  these 
averages  the  figures  in  column  four,  which  represent  the  true 

1  From  Paper  of  A.  E.  James,  before  the  Ninth  Annual  Meeting  of  the  County 
Supervisors,  1910,  especially  p.  13. 


TAX  COMMISSION  OF  WISCONSIN  249 

values  as  found  by  the  sales  method,  it  is  seen  that  the  coin- 
cidence is  again  quite  close,  a  result  which  confirms  the  repre- 
sentative character  of  the  sales  data.  This  confirmation  of  the 
statistical  theory  is  interesting  and  important,  from  the  practical 
viewpoint,  but  it  should  be  noted  that  these  figures  were  from  one 
small  rural  town  and  do  not  afford  in  themselves  a  sufficiently 
large  basis  for  sweeping  generalization.  However,  the  commission 
has  conducted  other  tests  all  of  which  tend  to  confirm  the  sound- 
ness of  the  statistical  assumption.  Not  all  of  these  results 
have  been  pubHshed  but  some  of  the  figures  have  been  supplied 
by  the  statistician  and  will  be  found  in  an  appendix  to  this 
chapter.^ 

Such  is,  in  brief,  the  sales  method  as  used  in  Wisconsin.  While 
it  is  admittedly  imperfect  it  is  undoubtedly  the  most  scientific 
attempt  that  is  now  being  made  in  the  United  States  to  equalize 
inaccurate  local  real  estate  assessments.  Some  form  of  this 
method  is  now  in  use  in  several  states,  but  it  has  been  more  highly 
developed  and  is  more  scientifically  used  in  Wisconsin  than  in  any 
other  state,  so  far  as  the  observation  of  the  writer  goes.^  The 
cost  of  the  system  has  not  been  excessive  and  has  tended  down- 
ward, both  absolutely  and  in  proportion  to  the  total  expense  of 
the  department.  The  figures  were  not  separated  before  1908  but 
since  that  time  they  have  been  as  shown  in  the  table  on  the  next 
page. 

The  increase  in  the  number  of  transactions  has  been  chiefly  due 
to  a  more  careful  investigation  of  the  consideration  in  "  dollar 
sales,"  while  the  cost  per  sale  has  also  been  affected  by  the  decline 
of  the  expenses  of  the  sales  bureau.  The  cost  of  this  bureau  for 
191 2  was  abnormally  low  owing  to  certain  shifts  within  the 
department,  and  that  for  19 14  was  unusually  high  because  of  a 

1  Cf.  below,  pp.  284-286.    Appendix  A. 

^  The  sales  method  was  rejected,  however,  by  the  Minnesota  courts  in  Shepard 
V.  Northern  Pacific  Railway,  in  equity  —  Report  of  Charles  E.  Otis,  Special  Master 
in  Chancery,  U.  S.  Circuit  Court,  district  of  Minnesota,  3d  division,  Sept.  21,  1910, 
on  the  ground  that  the  railroad  lands  in  St.  Paul  were  but  a  small  proportion  of 
the  total  lands  of  the  city  and  were  widely  scattered.  This  fact,  together  with  the 
notoriously  gross  inequaUties  of  local  assessment,  led  the  master  to  give  little  weight 
to  testimony  of  this  character.  Cf .  Whitten,  The  Valuation  of  Public  Service  Cor- 
porations, pp.  146, 147. 


otal  cost 

%  to  total 

expense  of 

tax  commission 

Number  of 
sales  used 

Cost  per  sale 

14,535 

.251 

20,548 

$0.71 

10,741 

.246 

20,913 

•SO 

10,898 

.190 

22,352 

•49 

9,785 

.172 

22,960 

•43 

7,831 

.III 

24,573 

•32 

6,882 

•039 

24,742 

.27 

10,425 

•056 

27,104 

•35 

7,916 

.04 

27,020 

•33 

4,748 

•03 

24,742 

.19 

250  THE  STATE  TAX  COMMISSION 

Cost  of  the  Sales  Department  ^ 

Year 

1908 $14,535 

1909 

1910 

1911 

1912 

1913 

1914 

19IS 

1916 

change  in  the  fiscal  year  for  reporting  sales  which  meant  that  an 
unusual  amount  of  work  was  charged  to  this  year.^ 

The  problem  of  both  state  and  local  assessment  of  personal 
property  has  been  greatly  simpHfied  by  the  exemption,  in  the 
income  tax  law  of  191 1,  of  some  of  the  most  troublesome  classes 
of  personalty.  The  chief  exemptions  were  moneys  and  credits, 
including  stocks  and  bonds,  farm  machinery,  tools  and  imple- 
ments. The  most  important  classes  of  the  personal  property  of 
individuals  that  are  still  taxable  are  farm  animals,  merchants' 
and  manufacturers'  stocks,  leaf  tobacco,  logs  and  lumber.  The 
state  and  local  assessments  of  these  remaining  classes  are  far 
from  satisfactory  and  the  commission  recommends  their  exemp- 
tion. The  stocks  of  merchants  and  manufacturers  have  always 
been  one  of  the  worst  assessed  groups,  so  that  the  loss  in  revenue 
from  their  complete  exemption  would  be  small.  More  abihty  has 
been  displayed  by  the  local  assessor  in  dealing  with  logs  and 
lumber,  while  farm  animals  have  always  been  among  the  best 
assessed  groups.  Because  of  the  tendency  for  the  value  of  farm 
animals  and  the  value  of  the  farm  to  vary  directly  it  would  make 
but  httle  difference  to  the  farmer  whether  his  assessment  were 
based  on  the  value  of  the  land  only,  or  upon  the  combined  value 
of  the  land  and  the  live  stock.^ 

^  From  data  supplied  by  the  tax  commission.  The  greater  total  cost  of  the 
commission  on  account  of  the  income  tax  lessens  the  proportion  of  the  sales  depart- 
ment unduly  in  recent  years. 

*  Letter  from  the  Commission,  Oct.,  1915. 

'  Cf.  Wisconsin  Tax  Commission,  Report,  1912,  p.  21;  ibid.,  1914,  p.  20;  ibid., 
1916,  ch.  4. 


TAX  COMMISSION  OF  WISCONSIN  25  I 

The  methods  used  by  the  commission  in  making  the  state 
assessment  of  personal  property  involve  the  use  of  a  large  mass  of 
independent  materials  by  which  the  local  figures  are  checked  and 
corrected.  In  the  note  below  are  given  some  of  the  data  which 
were  used  in  the  assessment  of  farm  animals  in  191 1  in  addition 
to  the  figures  of  the  local  assessors  and  of  the  county  supervisors 
of  assessment.^ 

The  figures  from  the  sources  indicated  in  the  note  were  sup- 
plemented by  various  special  reports  of  the  state  department 
of  agriculture  and  of  the  University  School  of  Agriculture  on 
the  condition,  quaHty,  and  value  of  various  classes  of  farm 
animals.  The  university  bulletin  on  the  number  and  distri- 
bution by  counties  of  grade  and  registered  stallions  is  an  illus- 
tration of  this  material.  The  value  of  the  offspring  of  the 
latter  will  of  course  be  greater  than  of  the  former,  and  some 
guide  to  relative  values  of  horses  over  the  state  may  be 
found  in  the  distribution  of  these  classes  of  breeding  animals. 
Similar  data  were  at  hand  regarding  the  dairy  industry.  Since 
191 1  the  assessors  of  incomes  have  been  relied  upon  to  supply  the 
data  for  the  state  assessment  of  personal  property,  and  in  19 14 
their  returns  were  used  to  a  large  extent  in  estimating  the  true 
value  of  the  enumerated  classes. ^  The  present  practice  is  for 
these  assessors  to  make  a  number  of  inspections  or  sample  assess- 
ments of  every  kind  of  taxable  property  in  their  districts,  on  the 
basis  of  which  the  true  taxable  value  of  each  class  of  property  in 

1  I.  Tables  showing  the  sales  value  of  farm  animals,  1907-10,  by  years,  from 
the  records  of  the  commission  and  of  the  state  department  of  agriculture,  and  other 
sources. 

2.  Number  and  value  of  farm  animals  on  Jan.  i,  19 10,  by  counties. 

3.  Figures  from  the  13th  Census,  the  date  of  which  corresponded  closely  enough 
with  the  local  assessment  date  of  19 10  to  serve  as  a  check  on  the  local  returns.  Us- 
ing the  Census  and  other  material  the  following  compilation  of  the  true  number  of 
farm  animals  in  each  county  was  made,  the  table  headings  alone  being  given. 

Number  assessed 
in  county,  in- 
Number  assessed      Census  number      Ratio  of  assessed     eluding  cities,      Est.  true  number 
in  towns  on  farms  to  census  etc.  in  county 

4.  For  calculating  the  values  the  following  data  from  the  Census  were  used. 

Again  only  the  table  headings  are  shown. 

Value  of  young 
at  one-half         Value  of       Average  value 
Total  number      Total  value      Average  value      average  value        mature  of  mature 

*  Wisconsin  Tax  Commission,  Report,  19 14,  pp.  47 >  48- 


252  THE  STATE  TAX  COMMISSION 

the  district  is  calculated.  These  calculations  serve  both  as  a 
check  and  a  guide  for  the  tax  commission.  The  inventories  given 
by  merchants  and  manufacturers  in  making  income  tax  returns 
are  now  tabulated  by  the  income  tax  assessors,  and  special 
inspections  are  made  to  ascertain  the  percentage  of  dead  and 
unsalable  stocks  of  merchandise  in  the  various  counties.  The 
property  and  franchises  of  water  and  light  companies  were  valued 
by  capitalizing  net  earnings  at  8  per  cent.^  Bank  stock  was 
valued  by  adding  capital  stock,  surplus,  and  undivided  profits, 
subtracting  the  value  of  the  real  estate  used  in  the  business,  and 
adding  lo  per  cent.  This  rather  artificial  method  is  being  steadily 
improved  as  the  number  of  quoted  bank  stocks  increases  and  as 
the  assessors  of  income  grow  in  experience  in  the  study  of  banking 
institutions  in  their  districts.  The  number  of  automobiles 
registered  from  January  to  May  was  taken  as  the  true  number; 
each  make  was  valued  as  new  and  depreciated  50  per  cent;  old 
and  discarded  makes  were  put  in  at  $100  each. 

From  this  survey  of  the  methods  used  in  making  the  state 
assessment,  attention  is  now  turned  to  a  consideration  of  its  pur- 
poses and  results.  There  are  two  main  purposes  of  the  state 
assessment:  first,  to  determine  the  rate  of  taxation  which  shall 
be  applied  to  the  corporations  taxed  under  the  ad  valorem  system ; 
and  second,  to  afford  a  basis  for  the  equitable  apportionment  of 
the  state  tax. 

The  average  rate  of  ad  valorem  taxation  for  corporations  is 
ascertained  by  dividing  the  aggregate  true  value  of  general  prop- 
erty, as  found  by  the  state  assessment,  into  the  aggregate  taxes 
levied  on  general  property  for  state,  county,  and  local  purposes, 
except  special  assessments  for  local  improvements.  An  examina- 
tion of  these  average  rates  reveals  a  fairly  steady  relation  between 
the  total  taxes  levied  and  the  state  valuation  of  property.^  This 

^  The  assessment  of  all  utilities  extending  through  more  than  one  district  is  now 
virtually  made  by  the  tax  commission.  Cf.  Wisconsin  Tax  Commission,  Report, 
1912,  pp.  22,  23;  1914,  p.  21. 

*  The  average  rates  of  taxation  have  been  as  follows: 

Year       Rate  per  dollar    Year       Rate  per  dollar 

1903 0114493568      1910 01117968554 

1904 011272631       1911 01108684064 

1905 0113829066      1912 01183243701 

1906 0109505         1913 01387403466 

1907 0115123697s     1914 013 

1908 01143084076     1915 013172 

1909 01125323566 

Cf.  ibid.,  1914,  p.  16,  for  a  comparison  of  local  and  state  rates. 


TAX  COMMISSION  OF  WISCONSIN  253 

rate  is  nearly  half  a  cent  lower  on  the  dollar  than  the  average 
rate  based  on  the  local  assessment.  The  pressure  upon  the  cor- 
porate property  taxed  at  the  average  state  rate  is  not  as  great, 
therefore,  as  upon  the  property  which  happens  to  be  assessed 
locally  at  more  than  the  average  percentage  of  its  true  value. 
The  lower  rate  is  evidence  of  the  possibilities  of  effective  admin- 
istration and  many  of  the  locaHties  which  have  always  had 
higher  rates  would  have  much  to  gain  by  a  more  vigorous  assess- 
ment of  their  property. 

The  earliest  reason,  historically,  and  in  many  respects  the  most 
important  reason  for  the  state  assessment  has  been  the  equitable 
apportionment  of  the  state  tax  and  the  possible  check  of  local 
competitive  undervaluation.  The  first  purpose  has  been  fairly 
well  attained,  but  the  latter  condition  has  not  been  completely 
ehminated,  although  the  commission  reports  that  there  is  now 
practically  no  discernible  effort  to  evade  the  state  tax  and  the 
struggle  to  dodge  local  taxes  is  steadily  diminishing. 

In  the  first  place  there  has  obviously  been  a  better  distribution 
of  the  state  tax  among  the  counties,  taking  the  latter  as  the  units, 
in  proportion  as  the  scientific  methods  of  the  tax  commission  have 
been  superior  to  the  slipshod  guesswork  of  the  former  state  board 
of  assessment.  The  general  result  of  the  equahzation,  from  this 
point  of  view,  has  been  to  reduce  the  proportion  of  state  tax 
levied  upon  the  southeastern  counties,^  which  are  the  older  in 
settlement,  the  more  densely  populated,  and  by  far  the  wealthier. 
In  the  past  ten  or  fifteen  years  the  newer  sections  have  increased 
very  rapidly  in  real  value,  though  until  191 1  these  increases  found 
their  way  but  slowly  upon  the  assessors'  books.^ 

In  the  second  place  the  state  assessment  has  shifted  a  somewhat 
larger  proportion  of  the  state  tax  to  personal  property.  In  1901 
the  latter  class  was  17.41  per  cent  of  the  total;  two  years  later  it 
had  been  advanced  to  25.3  per  cent  of  the  total.  The  proportion 
of  personal  property  then  declined  to  21.10  per  cent  by  1907,  but 
rose  again  to  25.14  per  cent  by  191 1.    The  exemptions  of  this 

^  Wisconsin  Tax  Commission,  Report,  1910,  pp.  116, 117. 

2  Cf.  ibid.,  191 2,  pp.  92,  93;  1914,  p.  54.  The  newer  sections  of  the  state  are 
increasing  in  wealth  relatively  much  more  rapidly  than  the  older  sections.  Some 
figures  are  given  below,  p.  274. 


254  '^^^  STATE  TAX  COMMISSION 

year  removed  a  considerable  volume  of  personal  property  from 
direct  state  and  local  taxation  and  reduced  the  proportion  of  the 
latter  to  18.28  per  cent  of  the  aggregate  in  1914.  The  earlier 
improvement  which  the  tax  commission  was  able  to  secure  was 
undoubtedly  far  short  of  the  proper  distribution  of  tax  burden 
between  the  two  groups,  since  many  classes  of  personalty  were 
very  imperfectly  listed  and  valued,  even  in  the  state  assessment. 
It  was  a  substantial  improvement  over  the  local  assessment,  how- 
ever, in  which  the  proportion  of  personal  property  ranged  from 
17.17  per  cent  to  19.93  per  cent  of  the  total  except  for  1902  when 
it  reached  20.71  per  cent. 

Finally,  with  respect  to  the  equalization  between  urban  and 
rural  property,  the  state  equalization  has  had  different  effects  for 
real  and  personal  property.  Through  the  use  of  the  sales  method 
the  true  value  of  real  estate  has  probably  been  ascertained  with 
equal  accuracy  for  urban  and  rural  districts.  But  the  careful 
methods  used  in  the  determination  of  the  quantity  and  value  of 
certain  forms  of  rural  personalty,  especially  farm  animals,  have 
had  no  parallel  until  recent  years  in  the  state  assessment  of  any 
other  class  of  taxable  personal  property  with  the  possible  excep- 
tion of  bank  stock.  Previous  to  191 1  there  was  no  means  of 
comparable  efficiency  for  ascertaining  the  true  amount  of  intan- 
gible property,  which  was  held  for  the  greater  part  in  the  cities, 
to  compensate  for  the  strict  state  assessment  of  rural  personal 
property.  The  necessarily  greater  reliance  upon  assessors'  returns 
in  the  case  of  personal  property  led  to  a  discrimination  not  only 
against  the  rural  classes,  but  against  the  owners  of  smaller 
amounts  of  property  in  both  city  and  country,  because  of  the 
well-known  tendency  of  the  local  assessor  to  undervalue  large 
holdings.  This  tendency  is  illustrated  by  some  very  interesting 
and  valuable  data  which  were  collected  relative  to  the  assess- 
ment of  personal  property  in  two  counties  in  connection  with 
reassessments  made  in  1907.  The  table  on  the  following  page 
is  reproduced  from  that  material. 

The  interests  of  Racine  county,  which  is  located  on  the 
southern  shore  of  Lake  Michigan,  are  primarily  urban  and  in- 
dustrial;  while  those  of  Monroe  county,  which  is  in  the  south- 


TAX  COMMISSION  OF  WISCONSIN  255 

Ratio  of  Assessed  to  Trxje  Value  of  Personal  Property  *  by 
Occupational  Groups 

Racine  County 

Number  Assessed 

Occupation  group  inspected  valuation  True  value  Ratio 

Total 1,357        $2,218,210  $7,686,915  28.86 

Farmers 697             484,676  852,786  58.20 

Merchants 506             677,814  2,093,251  32.38 

Manufacturers 83           1,025,680  4,687,428  21.84 

Trades  and  professions .  .         37                io,i75  28,345  35-9° 

Public  service 18               10,290  29,730  34.62 

No  occupation 16               ii,S75  i5,375  75-29 

Monroe  County 

Total 882        $1,389,031  $2,863,556  48.51 

Farmers 699             556,022  831,174  66.90 

Merchants 158             487,543  835,100  58.39 

Manufacturers 14             332,411  i,i74,iS9  28.32 

Trades  and  professions.  .           5                 6,900  11,583  59-58 

Public  servnce 6                 6,155  11,54°  53-34 

Note:  These  results  were  obtained  by  the  inspection  of  a  considerable  pro- 
portion of  the  total  amount  of  property  in  each  class.  The  number  refers  in  each 
case  to  the  number  of  inspections  made. 

western  part  of  the  state,  are  chiefly  agricultural.  For  every 
occupational  group  the  ratios  of  assessed  to  true  value  were 
higher  in  the  rural  county,  and  to  the  extent  of  these  differences 
even  those  businesses  involving  the  use  of  some  intangible  prop- 
erty were  less  heavily  taxed  in  the  characteristically  urban 
county.  But  the  figures  also  show  that  farmers  were  discrimi- 
nated against  by  the  local  assessors  in  both  counties,  as  compared 
with  merchants  and  especially  with  manufacturers.  Upon  this 
point  the  statistician  commented  as  follows: 

Not  only  are  manufacturers  assessed  at  a  lower  ratio  of  true  value  than 
merchants,  and  merchants  than  farmers,  but  this  same  discrimination  ap- 
plies equally  to  a  thousand  dollars  invested  in  a  single  undertaking,  in  each 
occupation.  Thus  a  hundred  dollars  which  is  worth  on  the  farm  a  little  less 
than  sixty-five  dollars  for  purposes  of  taxation,  when  invested  in  the  indus- 
trial undertakings  of  a  great  city  shrinks  in  taxable  value  to  a  little  less  than 
thirty-seven  dollars,  as  found  by  the  assessors  in  each  case. 

Under  the  income  tax  some  compensation  for  this  age-long 
inequaUty  of  incidence  of  the  personal  property  tax  is  promised 

1  A.  E.  James,  Statistical  Deductions  from  the  Inspection  of  Personal  Properly  in 
Racine  and  Monroe  Counties.     Special  report  to  the  tax  commission,  impublished. 


256  THE  STATE  TAX  COMMISSION 

to  the  rural  taxpayer,  upon  whom  as  a  class  this  measure  appears 
to  fall  but  lightly.  The  commission  estimated  in  19 14  that  less 
than  5  per  cent  of  the  farmers  of  the  state  were  paying  income  tax, 
while  the  proportion  of  rural  laborers  and  other  rural  classes  was 
negligible.^  Speaking  of  the  incidence  of  the  income  tax  the 
commission  said :  ^ 

If  the  income  tax  furnishes  a  proper  measure  of  taxable  capacity,  farm- 
ers and  those  laborers  subject  to  taxation  have  been  greatly  overtaxed  in  the 
past. 

In  one  important  respect,  however,  the  effort  had  been  made 
before  191 1  to  mitigate  the  evils  of  the  personal  property  tax. 
The  mortgage  exemption  law  of  1903  provided  that  mortgages 
should  be  taxed  as  an  interest  in  real  estate  in  the  district  where 
such  real  estate  was  located  and  not  otherwise.^  Permission  was 
given  to  the  mortgagor  to  return  his  interest  and  that  of  the  mort- 
gagee as  unencumbered  real  estate  and  to  assume  all  of  the  taxes. 
Since  1903  practically  all  mortgages  in  Wisconsin  have  been  so 
written  as  to  require  such  assumption  of  taxes  by  the  mortgagor. 
A  thorough  investigation  of  the  results  of  mortgage  taxation  in 
Wisconsin  was  made  in  1907  by  Professor  T.  S.  Adams.^  Among 
other  things,  this  interesting  investigation  disclosed  the  rather 
startHng  fact  that  the  class  of  smaller  borrowers,  the  hard-pushed, 
needy  proprietors  possessing  limited  knowledge  of  sources  of 
capital  and  small  personal  credit,  were  more  affected  by  the  weak- 
ness of  their  economic  position  than  by  the  advantages  of  the  tax 
law.  They  almost  universally  agreed  to  assume  the  taxes  but  they 
received  no  compensation  in  interest  rates,  which  were  markedly 
higher  than  in  the  case  of  larger  mortgages.  Again  the  advantage 
in  taxation  has  gone  chiefly  to  the  urban  borrower,  the  "  keen- 
witted business  man,"  while  the  rural  borrower,  the  equally 
deserving  but  less  capable  small  farmer,  has  borne  an  increased 
burden. 

1  Wisconsin  Tax  Commission,  Report,  1914,  ch.  5,  especially  p.  107. 

2  Ihid.,  1912,  p.  40.     Cf.  ibid.,  1916,  p.  63. 
^  Laws  of  Wisconsin,  1903,  ch.  378. 

*  This  study  was  published  as  Appendix  B,  in  the  Report  of  the  Tax  Commission 
for  1907.    Cf.  especially,  pp.  386-388. 


TAX  COMMISSION  OF  WISCONSIN  257 

Surveying  the  results  of  the  state  equahzation  by  the  tax  com- 
mission prior  to  191 1  it  has  been  seen  that  the  commission  intro- 
duced high  standards  and  has  succeeded  in  promoting  equaUty  of 
burden  among  classes  of  taxpayers  and  among  classes  of  property. 
The  cases  in  which  the  results  have  been  less  satisfactory  have 
been  those  in  which  the  commission  has  been  compelled  to  rely 
more  or  less  completely  upon  the  local  assessors'  returns.  The 
two  changes  made  in  the  tax  laws  in  191 1  have  made  possible 
much  progress  toward  an  independent  review  of  the  local  figures, 
however.  The  first  change  was  the  exemption  from  local  assess- 
ment, in  connection  with  the  income  tax  law,  of  all  intangibles 
and  some  of  the  most  troublesome  classes  of  tangibles.  The 
second  change  was  the  substitution  of  the  centrally  chosen  asses- 
sors of  income  for  the  former  locally  controlled  county  super- 
visors of  assessment.  The  assessors  of  income  now  supervise  and 
inspect  the  local  assessments  of  taxable  property  in  such  a  way  as 
to  render  the  tax  commission  increasingly  independent  of  the  local 
returns.  Greater  equality  is  attained  thus,  not  only  in  the  dis- 
tribution of  the  state  tax  but  in  the  distribution  as  well  of  the 
local  tax  burden.  But  this  result  simply  emphasizes  the  obvious 
conclusion  regarding  equalization  in  general  —  a  good  equaliza- 
tion cannot  wholly  correct  a  poor  assessment.  Fundamentally, 
an  adequate  equalization  of  the  tax  burden  can  only  be  attained, 
if  at  all,  through  effective  control  of  the  original  assessment.  The 
results  of  central  supervision  of  the  original  assessments  in 
Wisconsin  will  be  discussed  below. ^ 

State  Assessment  of  Corporations 

The  contribution  of  the  problems  of  corporate  assessment  to 
the  development  of  central  administration  of  the  entire  tax 
system  has  already  been  noted.  That  there  might  be  no  lack  of 
light  upon  a  difficult  subject,  the  inquiry  into  corporate  taxation 
which  the  new  tax  department  was  directed  to  make  was  supple- 
mented by  two  others,  one  conducted  by  the  governor  and  the 
other  by  the  railroads  themselves.  Each  of  these  had  as  its  object 
a  comparison  of  the  relative  tax  burden  of  the  railroads  under  the 

1  Cf.  below,  pp.  270  ff. 


258  THE  STATE  TAX  COMMISSION 

license  fee  system  and  under  an  ad  valorem  system  at  the  average 
rate  of  taxation  for  the  state.  This  object  shaped  the  form  of  the 
investigations,  which  was  the  determination  of  the  true  value  of 
the  taxable  property  of  the  state.^  The  most  thorough  investiga- 
tion was  that  of  the  tax  commission,  the  results  of  which  were  in 
general  substantiated  by  the  governor's  researches.  This  result 
may  best  be  expressed,  perhaps,  by  the  comparative  figures 
obtained  by  the  commission  showing  the  taxes  due  the  state  under 
the  specific  system  as  against  the  amounts  that  would  be  due 
imder  an  ad  valorem  system  at  the  average  rate  for  the  state. 

Comparative  Taxes  on  Railroad  Property* 

Year  License  taxes  Taxes  under  ad  valorem  system 

1901... $1,600,379.79  $2,652,590.62 

1902 1,711,900.18  2,664,950.20 

The  argument  was  conclusive  against  the  gross  earnings  tax,  and 
the  first  ad  valorem  railroad  assessment  was  made  in  1903-04, 
for  the  year  1904.^  The  railroads  were  required  to  continue  the 
payment  of  hcense  fees  at  the  regular  rates,  with  the  provision 
that  if  these  fees  were  less  than  the  taxes  levied  upon  the  prop- 
erty valuation,  the  sum  paid  as  a  license  fee  would  be  deducted 
from  the  total  and  only  the  balance  would  be  collected.  If  the 
amount  so  paid  were  in  excess  of  the  taxes  due  under  the  new 
system,  the  difference  would  be  refunded  to  the  company.  This 
precaution  was  taken  to  prevent  complete  loss  of  state  revenue 
from  the  railroads  in  the  event  of  injunctions  or  adverse  judicial 
decisions.  The  arrangement  was  to  continue  to  1905,  but  subse- 
quent legislation  extended  it  to  1909  when  it  became  inoperative. 
The  commission's  first  task,  in  connection  with  the  railroad 
assessment,  was  a  valuation  of  the  railroad  properties.  In  general 
the  plan  of  the  Michigan  appraisal  was  followed  and  data  were 
compiled  for  a  commercial  valuation  on  the  basis  of  capitalization 
and  earnings,  and  for  a  physical  appraisal.  The  information  for 
the  first  of  these  was  obtained  from  the  companies  themselves  in  a 

1  Snider,  Taxation  of  Gross  Receipts  in  Wisconsin,  pp.  106-118,  gives  a  good  ac- 
count of  the  various  methods  used  in  these  investigations. 
*  Laws  of  Wisconsin,  1903,  ch.  315. 
^  Wisconsin  Tax  Commission,  Report,  1907,  pp.  84,  90. 


TAX  COMMISSION  OF  WISCONSIN  259 

series  of  reports  much  more  elaborate  than  the  returns  obtained 
by  the  average  state  board  of  assessors  at  that  time.  The  forms 
used  today  are  much  improved  and  are  models  of  thoroughness. 
Their  scope  may  be  briefly  indicated  by  the  following  summary  of 
the  data  which  they  require  the  companies  to  submit  to  the  tax 
commission : 

1.  General  facts  regarding  the  corporate  history,  such  as  its  experiences 
in  consolidations,  reorganizations  and  receiverships. 

2.  Names  and  addresses  of  the  directors  and  principal  officers. 

3.  Complete  description  of  the  capitalization.  This  report  must  cover 
the  following  facts: 

(o)  Volume  and  value  of  each  class  of  stock  issued,  with  statement  of 
amounts  outstanding  and  in  the  treasury;  and  the  dividend  record 
of  the  preceding  five  years.  The  average  market  value  of  the  stock 
was  to  be  computed  by  one  of  two  methods.  The  more  desirable 
method  was  to  multiply  the  number  of  shares  sold  at  each  sale  by 
the  price  per  share,  adding  the  amounts  paid  at  all  of  the  sales  and 
dividing  by  the  number  of  shares  sold  in  the  period.  These  cal- 
culations were  to  be  made  over  the  preceding  quinqueimium.  In 
case  the  facts  regarding  sales  of  stock  were  not  available  the  aver- 
age price  was  to  be  obtained  by  averaging  the  highest  and  lowest 
monthly  or  weekly  prices. 

(b)  Complete  statement  of  the  funded  debt  and  equipment  obliga- 
tions with  the  interest  record  of  the  preceding  five  years;  also 
the  market  value,  or  actual  value,  of  these  issues. 

(c)  Lists  of  the  .securities  of  other  companies,  and  the  purposes  for 
which  they  were  held. 

4.  Mileage  statistics,  including  miles  owned,  miles  operated,  and  the 
miles  in  each  state. 

5.  Income  account  for  the  entire  system  and  for  Wisconsin,  including  a 
statement  of  the  taxes  paid  in  each  state,  except  internal  revenue 
taxes. 

6.  Statistics  of  real  estate  holdings,  including  a  Ust  of  the  land  grants 
owned  by  the  railroads,  a  tabulation  of  real  estate  not  used  in  actual 
operations,  and  a  statement  of  the  real  estate  in  right  of  way,  yards, 
stations  and  terminals  in  Wisconsin. 

In  addition  to  the  above  the  commission  has  copies  of  the  reports 
submitted  by  Wisconsin  railroads  to  the  state  railroad  commission 
and  to  the  Interstate  Commerce  Commission. 

The  second  avenue  of  approach  to  the  value  of  railroad  prop- 
erty has  been  the  physical  appraisal  of  this  property.  Such  an 
appraisal  has  been  conducted  annually  since  1903-04.  The 
Michigan  appraisal  of  1901  served  as  the  model  for  the  first  sur- 


26o  THE  STATE  TAX  COMMISSION 

vey,  in  which  the  railroad  representatives  and  the  commission 
in  conference  adopted  the  plan  of  valuing  the  properties  at  the 
cost  of  reproduction,  new,  on  the  basis  of  the  average  prices  pre- 
vailing for  the  five  years  ending  June  30, 1902. ^  The  cost  of 
reproduction  in  existing  condition  was  to  be  determined  by  mak- 
ing deductions  from  the  cost  of  reproduction  new,  to  cover 
depreciation  on  account  of  age,  wear  and  tear,  and  other  factors. 
The  company  engineers  accordingly  prepared  an  inventory  of 
their  respective  roads  which  was  verified  by  the  commission's 
special  staff  of  engineers.  These  inventories  were  made  upon 
blanks  and  in  the  form  prescribed  by  the  commission.  A  very 
cordial  cooperation  existed,  and  the  appraisal  was  pronounced 
by  one  company  engineer  to  be  a  "  campaign  of  education  for 
the  employees  of  his  company  in  teaching  them  what  property 
the  company  really  possessed."  Since  the  original  valuation,  the 
physical  condition  of  the  roads  has  been  checked  up  annually  to 
make  allowance  for  additions,  betterments,  and  other  improve- 
ments to  the  physical  property.  Some  changes  have  also  been 
made  in  the  basis  of  valuing  different  factors  owing  to  variations 
in  prices  and  labor  costs. 

In  the  earlier  years  of  the  ad  valorem  system  the  commission 
was  rather  unwilling  to  discuss  its  methods  in  the  pubhshed 
reports,  and  was  inclined  to  draw  the  veil  of  secrecy  over  the  ofiice 
details  of  the  valuation.  But  this  policy  has  always  been  vig- 
orously attacked  by  the  corporations  to  which  it  has  been  appKed, 
though  the  courts  have  tended  to  sustain  the  commission's  posi- 
tion in  this  respect  as  long  as  the  results  were  found  to  be  reason- 
able. The  policy  of  secrecy  in  the  early  years  can  be  justified, 
perhaps,  by  the  need  of  protecting  the  state's  revenues  against  the 
interminable  litigation  which  publicity  would  have  stimulated 
and  encouraged.  After  the  principle  of  central  assessment  had 
become  firmly  estabhshed  the  commission  began  to  take  the  rail- 
roads —  and  the  public  —  more  into  its  confidence.  In  191 2  the 
Minnesota  Tax  Commission  criticized  at  length  the  ad  valorem 
system  in  general  and  the  Wisconsin  method  in  particular,  quot- 
ing copiously  from  the  record  of  a  recent  hearing  before  the  latter 

^  Wisconsin  Tax  Commission,  Report,  1907,  ch.  4. 


TAX  COMMISSION  OF  WISCONSIN  26 1 

in  which  the  commissioners  described  their  system  in  detail. ^ 
The  Minnesota  commission  thus  summarizes  its  discussion :  ^ 

It  was  supposed  that  a  physical  valuation  would  provide  a  means  of 
taxing  railroads  on  substantially  the  same  basis  as  other  property,  but  the 
physical  value  has  become  a  mere  incident.  It  was  claimed  that  ad  valorem 
assessment  by  the  state  board  would  put  an  end  to  dependence  on  figures 
furnished  by  the  railroads  (self-assessment),  that  certainty  would  replace 
uncertainty,  and  that  taxation  on  property  values  would  supersede  taxation 
on  income.  Not  one  of  these  expectations  has  been  realized.  After  eight 
years  we  find  the  commission  confessedly  following  as  many  methods  as 
there  are  men,  methods  that  yield  results  largely  divergent  and  contradic- 
tory, and  in  the  end  driven  to  create  a  hypothetical  property  value  by  capi- 
talizing the  net  earnings  at  various  arbitrary  rates.  What  is  more  striking, 
we  find  them  using  without  question  the  figures  furnished  by  the  railroads  — 
precisely  the  thing  which  the  ad  valorem  system  was  supposed  to  avoid. 

This  whole  discussion  of  the  Wisconsin  system  was  char- 
acterized by  Professor  Adams  in  a  personal  letter  as  misleading 
because  of  its  failure  to  appreciate  the  "  methodical,  careful  way  " 
in  which  the  estimates  are  made.^  As  an  offset  to  these  criticisms, 
the  following  description  of  the  methods  used  is  given  by  Pro- 
fessor Adams  in  the  same  letter : 

As  a  matter  of  fact,  about  fifteen  different  valuations  are  first  prepared 
by  clerks  in  the  ofiice  and  from  these  by  a  mechanical  method  of  combina- 
tion a  first  approximation  is  secured.  These  results  furnish  a  starting  point, 
a  basis  of  discussion.  Meanwhile  each  commissioner  has  been  studying  the 
reports  and  probably  employing  one  or  two  modifications  of  the  methods 
mentioned  above  in  which,  for  one  reason  or  another,  he  may  happen  to 
have  particular  confidence.  With  the  average  valuation  or  starting  point 
above  described  and  the  details  of  all  the  methods  before  us,  it  is  then  pos- 
sible to  bring  to  bear  on  the  various  valuations  all  of  the  many  factors 
which  by  reason  of  their  number  and  complexity  cannot  be  incorporated  into 
any  mechanical  method  of  calculation.  There  is  of  course  no  absolute  cer- 
tainty in  this  scheme  of  valuation,  but  any  group  of  men  having  common 
sense  and  some  acquaintanceship  with  the  properties  in  question  can  always 
—  provided  their  intentions  are  equitable  —  modify  the  results  of  any 
mechanical  valuation  in  the  direction  of  greater  justice. 

In  a  later  letter  Professor  Adams  goes  into  greater  detail,  and  with 
his  permission  this  fuller  description  of  methods  used  is  given  as 
an  appendix  to  this  chapter.'* 

'  Minnesota  Tax  Commission,  Report,  1912,  ch.  15.  ''  Ibid.,  p.  208. 

'  Personal  Letter  from  T.  S.  Adams,  July  31,  19 13. 

*  Cf.  below,  pp.  284,  285.    Also,  Adams,  "  The  Valuation  of  Railway  Property 


262  TEE  STATE  TAX  COMMISSION 

The  practice  of  the  two  states,  Wisconsin  and  Minnesota,  pre- 
sents an  opportunity  for  contrasting  the  virtues  of  these  two 
leading  methods  of  railroad  taxation.  What  is  regarded  by  the  ad- 
vocates of  the  gross  earnings  system  as  certainty  is  pronounced 
by  its  opponents  to  be  inelasticity.  On  the  other  hand,  according 
to  friend  and  foe,  the  eflaciency  and  even  the  safety  of  the  ad 
valorem  system  is  very  largely  dependent  upon  the  absolute 
fairness  and  sound  abiUty  of  the  men  charged  with  its  adminis- 
tration. Professor  Adams,  in  the  extract  quoted  above,  virtually 
makes  the  ultimate  determination  of  the  assessment  a  matter  of 
common  sense  and  knowledge  of  the  properties.  No  question  has 
ever  been  raised  against  the  Wisconsin  commission  on  either  of 
these  points;  and  its  administration  of  the  ad  valorem  taxation 
of  corporations  has  been  entirely  free  from  any  suggestion  of  im- 
proper influence  or  methods  —  a  record  which,  had  it  been 
attained  by  those  in  charge  of  the  former  system,  would  have  gone 
far  to  perpetuate  that  form  of  taxation  in  the  state.  After  all, 
the  experience  of  Wisconsin  and  Minnesota  suggests  the  con- 
clusion, so  far  as  the  merits  of  the  two  systems  of  railroad  taxa- 
tion are  concerned,  that  either  will  yield  fairly  satisfactory  results 
if  ably  and  honestly  administered ;  but  that  either  presents  ample 
opportunity  for  improper  manipulation  if  the  greatest  care  be  not 
taken  to  secure  as  administrators  men  of  the  highest  character 
and  ability. 

It  has  already  been  stated  that  the  results  of  the  physical 
appraisal  of  railroad  property  are  used  merely  as  one  factor  in  the 
ultimate  valuation.  That  this  is  evident  appears  from  a  com- 
parison of  the  figures  on  page  263  obtained  by  the  engineers  and 
the  final  assessment  established  by  the  commission. 

It  will  be  observed  that  for  the  first  four  years  the  roads  were 
assessed  at  a  valuation  above  the  cost  of  reproduction  new,  as 
calculated  by  the  engineers.  Since  1907  the  estimates  of  the 
latter  have  risen  above  the  commission's  figures,  though  the  esti- 
mated value  in  present  condition  has  always  been  far  below  the 
results  reached  by  the  commission.    The  marked  increase  of 

for  Purposes  of  Taxation,"  Jokt.  Pol.  Econ.,  xxiii,  pp.  1-16.    The  subject  was  also 
quite  fully  covered  in  the  Commission's  Report  for  1916,  ch.  5. 


TAX  COMMISSION  OF  WISCONSIN  263 

Valuation  of  Railroad  Property  in  Wisconsin  * 

Engineer's  valuation 

Value,  existing  Tax  commission's 

Year  Value  new  condition  final  valuation 

1903 $205,760,519  $169,758,519         

1904 212,946,450  170,743,205  $218,024,900 

1905 220,119,218  177,105,667  228,810,000 

1906 227,778,100  181,575,690  237,239,500 

1907 244,150,450  196,008,387  255,850,000 

1908 271,063,500  215,027,646  267,861,500 

1909 302,356,350  245,163,991  274,948,000 

1910 319,363,291  258,163,339  284,066,000 

19" 326,455,462  261,324,202  297,935,000 

1912 353,647,398  282,110,871  325,085,000 

1913 378,148,160  302,818,871  326,253,000 

1914 385,711,140  309,907,070  340,242,000 

1915 358,800,000 

1916 360,960,000 

the  engineer's  figures  is  indicative  of  the  changed  attitude  of  the 
railroads  themselves.  When  the  only  question  at  issue  wsls,  that 
of  valuation  for  taxation  the  roads  were  interested  in  securing  as 
low  a  valuation  as  possible  and  used  rock-bottom  prices  wherever 
possible  in  figuring  costs.^  Since  the  creation  of  the  Wisconsin 
railroad  commission  in  1905  and  the  emergence  of  the  problems 
of  rate  regulation  and  capitalization,  the  roads  have  been  much 
more  interested  in  showing  a  higher  valuation  because  of  its 
bearing  upon  the  rate  question. 

The  financial  significance  of  the  changed  method  of  taxation 
can  best  be  seen  in  the  fact  that  in  the  six  years  1904-09  the  net 
gain  to  the  state  over  the  amounts  due  under  the  license  fee 
system  was  $3,986,687.  It  has  been  argued  that  the  rates  on 
gross  earnings  could  have  been  advanced  to  produce  greater 
revenue;  but  such  changes  would  undoubtedly  have  been  stoutly 
resisted  by  the  railroads  and  might  possibly  have  been  warded 
off  entirely.  The  experience  of  Minnesota  shows  that  increases 
in  the  rates  are  not  always  easily  made.^ 

The  policy  of  completely  centraHzed  railroad  assessment  was 
temporarily  abandoned  at  one  point  in  191 1  by  transferring  to 

*  Figures  from  the  biennial  reports  of  the  tax  commission.  Engineer's  figures 
for  191 5  and  1916  not  available. 

^  a.  Testimony  before  the  Commission  in  the  appeals  oi  1903.      '  Cf.  below,  p.  411. 


264  THE  STATE  TAX  COMMISSION 

the  local  jurisdiction  the  assessment  of  certain  railroad  terminal 
facilities,  described  as  follows:  ^ 

Real  estate  not  adjoining  the  tracks,  stations  or  terminals;  grain  ele- 
vators used  in  transferring  grain  between  cars  and  vessels,  coal  docks,  ore 
docks  and  merchandise  docks,  and  real  estate  not  necessarily  used  in  operat- 
ing the  raUroad.  .  .  . 

The  motive  for  this  administrative  retrogression  was  that  which 
had  emerged  in  New  Jersey  in  1906.^  The  municipalities  were  in 
need  of  additional  revenue  and  took  this  means  of  securing  it  on 
the  ground  that  the  local  unit  which  met  the  whole  expense  of 
protecting  these  specialized  and  locaHzed  forms  of  property 
should  derive  the  revenue  from  their  taxation.  The  recrudescence 
of  the  benefit  theory  of  taxation  in  this  form  was  unfortunate 
since  it  meant  a  step  backward  toward  administrative  chaos. 
The  courts  did  not  allow  this  law  to  stand,^  and  the  desired  end 
was  accomplished  in  the  only  sound  and  proper  way  by  provid- 
ing for  a  unit  assessment  of  the  property  by  the  central  authority 
and  an  apportionment  of  values  to  the  locaHties  in  which  these 
large  terminal  properties  were  situated.^ 

The  Assessment  of  Street  Railroads  and  Electric 
Light  Companies 

Street  railroads  and  electric  Ught  companies  operated  in  con- 
nection therewith  were  made  subject  to  a  Hcense  tax  on  gross 
earnings  in  1895.^  Various  modifications  were  made  in  the  rates 
and  in  the  grouping  of  the  companies  into  classes  according  to  the 
volume  of  gross  earnings  until  the  ad  valorem  system  was  sub- 
stituted in  1905.^  The  reasons  for  this  change  were  the  inade- 
quacy of  the  gross  earnings  tax  and  the  need  for  closer  public 
control.  The  commission  was  apparently  in  favor  of  securing 
separate  sources  of  state  and  local  revenue  in  1901,^  but  there  is 
little  evidence  of  any  marked  sentiment  in  favor  of  such  a  policy 
in  1905.    The  inadequacy  of  the  gross  earnings  tax  had  been 

^  Laws  of  Wisconsin,  191 1,  ch.  540.  ■*  Laws  of  Wisconsitt,  1915,  ch.  407. 

2  Cf.  above,  p.  104.  *  Ibid.,  1895,  ch.  393. 

'  150  N.  W.  423.  *  Ibid.,  1905,  ch.  493. 

'  Wisconsin  Tax  Commission,  Report,  1901,  pp.  75,  114.    Phelan,  op.  ciL,  p.  406. 


TAX  COMMISSION  OF  WISCONSIN  265 

demonstrated  in  1901  by  a  comparison  of  the  taxes  due  under 
the  license  and  the  ad  valorem  systems.^  This  comparison 
showed,  as  in  the  case  of  the  later  investigation  of  the  railroads,  a 
considerable  difference  in  the  companies'  favor  under  the  license 
system.  For  instance,  sixteen  companies  had  paid  license  fees 
amounting  to  $104,676  in  1899;  but  on  the  ad  valorem  basis 
their  taxes  would  have  been  about  $175,000.  The  taxes  on  a 
three-year  average  valuation  would  have  been  about  $160,000; 
and  on  a  five-year  average  valuation  about  $150,000.  The 
argument  for  closer  state  control  was  based  upon  the  growing 
need  of  rate  regulation  and  control  of  capitalization  and  service, 
as  well  as  upon  the  difficulties  of  successful  administration  of  the 
tax  on  gross  earnings. ^ 

As  in  the  case  of  the  railroad  assessment  the  commission  made 
an  appraisal  of  the  physical  property  of  street  railways  and  elec- 
tric light  plants  operated  in  connection  therewith.  This  valua- 
tion was  begun  with  the  properties  of  the  Milwaukee  system,  not 
only  because  of  its  size  and  importance  among  the  plants  of  the 
state,  but  also  as  the  basis  for  the  settlement  of  a  dispute  between 
the  company  and  the  city  over  rates  and  conditions  of  service.^ 
For  the  latter  purpose  the  valuation  was  to  be  as  of  December  31, 

1906,  while  for  the  purpose  of  taxation  it  was  to  be  as  of  June  30, 

1907.  The  basis  was  identical  except  in  so  far  as  the  inventory 
and  the  condition  of  the  property  might  differ  on  the  dates 
named.  The  methods  applied  to  the  other  properties  of  the  state 
were  critically  reviewed  in  the  light  of  the  Milwaukee  results, 
since  it  was  realized  that  the  data  might  be  in  demand  in  other 
rate  hearings  before  the  utilities  commission.  In  general  the 
methods  and  procedure  have  not  differed  greatly  from  those 
used  for  railroads;  and  as  in  the  latter  case,  the  final  assessments 
have  varied  considerably  from  the  engineer's  estimates  of  physical 
valuation. 

Owing  to  the  nature  of  these  enterprises  the  tax  has  always 
been  divided  between  the  state  and  the  various  local  districts 

'  Wisconsin  Tax  Commission,  Report,  iqoi,  pp.  114,  115. 

*  Cf.  the  commission's  argument  in  the  Report  for  1901,  pp.  74,  75. 

'  Wisconsin  Tax  Commission,  Report,  1909,  pp.  135-145. 


266  THE  STATE  TAX  COMMISSION 

through  which  the  roads  operate.  Under  the  present  arrangement 
15  per  cent  of  the  tax  goes  to  the  state  and  85  per  cent  to  the 
localities.  Previous  to  191 1  the  basis  of  local  distribution  was  the 
gross  receipts  from  each  district,  but  in  that  year  the  basis  was 
changed  to  the  property  located  in,  and  the  business  transacted 
in  each  district.^  By  this  change  some  country  districts  have 
received  sufficient  revenue  from  this  source  alone  to  meet  all 
ordinary  town  expenses,  though  in  some  cases  the  people  of 
the  district  have  contributed  but  little  to  the  business.^  In  the 
absence  of  definite  legislation  the  commission  has  ruled  that  the 
county  boards  shall  include  the  valuations  of  these  properties  in 
making  the  county  assessment,  to  the  end  that  districts  which 
contain  no  property  of  such  companies,  but  which  contribute 
materially  to  their  revenue,  may  benefit  in  the  county  apportion- 
ment.^ The  spread  of  the  interurban  systems  over  the  state, 
together  with  the  increasing  extent  to  which  they  draw  traffic 
from  districts  other  than  those  in  which  their  Hnes  are  situated, 
will  probably  tend  to  divert  a  greater  share  of  the  tax  to  the  state. 
This  tendency  has  already  been  revealed.  In  1895,  when  these 
companies  were  first  removed  from  the  general  property  tax,  91 
per  cent  of  the  tax  went  to  the  local  districts,  6  per  cent  to  the 
counties,  and  3  per  cent  to  the  state.  In  1897  the  proportions 
going  to  state  and  county  were  exactly  reversed;  and  in  1899, 
because  of  the  rapid  extension  of  interurban  lines,  the  propor- 
tions were  88  per  cent  to  the  districts,  3  per  cent  to  the  counties, 
and  9  per  cent  to  the  state.  Finally,  under  the  ad  valorem  system, 
the  state  was  given  15  per  cent  of  the  total  tax. 

The  Assessment  of  Express,  Sleeping  Car,  Freight  Line  and 
Equipment  Companies.  —  The  application  of  the  ad  valorem 
system  to  these  corporations  in  1899  marked  the  introduction  of 
that  method  of  taxation  in  Wisconsin.*  The  formula  prescribed 
by  the  law  of  1899  for  the  valuation  of  these  companies  followed 
the  traditional  but  artificial  lines.   It  was  as  follows: 

^  Laws  ofWisconsin,  1911,  ch.  612. 

*  One  town  in  Waukesha  county  received  $3,915.40  from  this  source  in  191 1, 
and  raised  only  $678.31  in  cash  from  taxes  on  property.  Wisconsin  Tax  Commis- 
sion, Report,  191 2,  p.  6. 

^  Cf.  Phelan,  op.  ciL,  p.  405.  *  Laws  ofWisconsin,  1899,  chs.  111-114. 


TAX  COMMISSION  OF  WISCONSIN  267 

1.  Money  value  of  stock  less  real  estate  outside  of  Wisconsin  and  p>er- 
sonalty  not  used  in  the  business  =  cash  value  of  stock. 

2.  Cash  value  of  stock  ,  ., 

— — ; — r  =  average  value  per  mile. 

Total  mileage  operated 

3.  Average  value  per  mile  times  miles  in  Wisconsin  =  value  in  Wisconsin. 

This  formula  left  little  to  the  commission  beyond  verification  of 
the  statements  of  the  companies.  Until  1905  its  administration 
was  shared  between  the  tax  commission  and  the  state  treasurer, 
to  whom  the  companies  made  the  reports  required  by  law.  In 
this  year  the  commission  was  given  complete  charge  of  the  assess- 
ment and  the  reports  have  since  been  made  directly  to  it.*  The 
new  law  authorized  the  commission  to  consider  the  value,  earning 
capacity,  and  mileage  of  the  entire  system  as  well  as  of  that  part 
located  within  the  state,  and  to  view  the  property  of  any  com- 
pany. The  commission  is  thus  authorized  to  vary  the  rule  of 
valuation  given  above  by  conducting  a  valuation  along  practi- 
cally the  same  Hnes  as  in  the  assessment  of  steam  railroads.  The 
law  of  1905  provided  further  that  if  no  report  were  made,  the 
delinquent  company  was  estopped,  except  upon  proof  of  actual 
injury,  from  questioning  the  action  of  the  commission  which  was 
in  such  a  case  to  make  the  assessment  upon  the  basis  of  such 
information  as  it  was  able  to  secure.  Unpaid  taxes  were  to  draw 
15  per  cent  interest  until  paid. 

While  the  results  under  this  more  centralized  method  of  assess- 
ment are  superior  to  those  attained  by  local  assessment,  or  even 
by  the  gross  earnings  tax,  the  present  system  can  hardly  be 
regarded  as  satisfactory.  The  commission  finds  it  difficult  to 
check  the  returns  of  total  mileage  operated  and  of  property 
owned  outside  the  state.  The  receipts  from  these  companies  do 
not  justify  great  expense  of  administration,  which  should  be  as 
automatic  as  possible.   The  total  taxes  were  $54,226  in  1914.^ 

Telegraph  Companies.  —  The  first  corporation  tax  levied  in 
Wisconsin  was  a  mileage  tax  on  telegraph  companies,  imposed  by 
the  territorial  legislature  of  1848.^  The  rates  were  changed  from 
time  to  time,  and  in  1882  "  miles  of  wire  "  was  substituted  for 

*  Laws  of  Wisconsin,  1905,  ch.  477. 

2  Wisconsin  Tax  Commission,  Report,  1914,  p.  153. 

'  Laws  of  the  Territory  of  Wisconsin,  1848,  p.  257. 


268  THE  STATE  TAX  COMMISSION 

"  miles  of  line,"  and  a  graduated  scale  of  rates  was  introduced.^ 
The  commission's  investigations  showed  that  telegraph  companies 
were  not  being  adequately  taxed  under  the  rates  imposed  on  gross 
earnings,  and  in  1905  the  ad  valorem  system  was  appKed.^  The 
first  assessment  was  for  the  year  1907.  The  license  taxes  collected 
in  1906  amounted  to  $13,473.54,  and  the  ad  valorem  tax  yielded 
$22,426  in  1907.  By  1914  the  tax  had  risen  to  $20,094.  Rela- 
tively the  increase  over  the  gross  earnings  tax  was  significant 
but  the  financial  results  do  not  warrant  the  cost  of  the  present 
system.  As  in  the  case  of  the  other  transmission  companies,  a 
method  of  taxation  is  needed  the  burden  of  which  would  be 
commensurate  with  the  yield  obtained. 

It  will  be  observed  from  the  foregoing  discussion  that  cen- 
tralized administration  of  corporation  taxes  has  not  become  the 
universal  rule.  The  license  tax  on  gross  earnings  is  still  in  use 
for  telephone  companies,  insurance  companies,  plank-road,  and 
boom  and  dam  companies.  Certain  other  corporations  which 
present  problems  of  assessment  too  difficult  for  the  local  assessor 
have  been  left,  apparently  without  question,  in  his  jurisdiction. 
Of  these  the  most  important  were  those  organized  for  the  follow- 
ing purposes :  ^ 

1.  Companies  furnishing  gas,  electricity,  water  or  steam  for  domestic  or 
manufacturing  purposes. 

2.  Companies  for  the  improvement  of  navigation  of  pubHc  streams  or 
other  public  waters. 

3.  Companies  for  the  conservation  and  regulation  of  height  and  flow  of 
water  in  public  streams  and  reservoirs. 

The  corporations  included  in  the  last  two  classes  were,  for  the 
most  part,  organized  years  ago  to  facilitate  the  storage  and  trans- 
mission of  forest  products;  and  while  this  function  has  greatly 
decHned  in  importance,  the  companies  still  retain  control  of  the 
dams  and  have  been  utilizing  them,  wherever  practicable,  for 
water  power  purposes.*  In  many  instances  the  line  between  pub- 
lic and  private  business  has  been  obscured  and  the  problems  of 

^  Laws  of  Wisconsin,  1882,  ch.  320. 

^  Wisconsin  Tax  Commission,  Report,  1901,  pp.  115-119.  Laws  of  Wisconsin, 
1905,  ch.  494. 

'  Wisconsin  Tax  Commission,  Report,  1910,  p.  50.  *  Ibid.,  1909,  p.  97. 


TAX  COMMISSION  OF  WISCONSIN  269 

assessment  have  been  correspondingly  complicated,  especially  in 
view  of  the  court's  ruling  that  all  public  service  corporations 
must  be  assessed  by  the  unit  rule,  i.  e.,  that  there  must  be  no 
separation  of  the  physical  property  and  the  franchises  or  other 
intangible  elements  of  value. ^  It  has  been  almost  impossible  for 
the  local  assessors  to  observe  this  rule,  especially  when,  as  often 
happens,  the  properties  extend  into  more  than  one  assessment 
district.  Other  complications  have  arisen  when  the  business  has 
been  in  part  that  of  a  public  service  corporation  and  in  part  that 
of  a  purely  private  corporation,  as  in  the  case  of  a  river  improve- 
ment company  exercising  its  function  as  such,  and  also  engaged 
in  producing  electric  power  for  private  purposes.  In  such  a  case 
the  unit  rule  would  of  course  apply  only  to  that  part  of  the  prop- 
erty devoted  to  the  public  use  and  the  helplessness  of  the  local 
assessor  is  readily  seen. 

The  legislature  had  attempted  to  meet  the  dif&culty  by  provid- 
ing for  the  assessment  of  the  property  of  a  water,  gas,  or  electric 
corporation  as  a  unit  and  the  distribution  of  the  taxes  among  the 
several  assessment  districts  into  which  the  physical  property 
extended. 2  The  basis  of  apportionment  was  to  be  the  length  of 
mains  or  pipes  in  the  case  of  a  water  or  gas  plant,  and  the  length 
of  wires  for  an  electric  plant,  including  such  as  extended  into  any 
building,  hght,  or  signal.  Real  estate  used  in  the  business  was  to 
be  deducted  and  credited  to  the  district  in  which  the  same  was 
located.  A  further  remedial  step  was  taken  in  191 1  by  giving  the 
commission  supervision  over  the  local  assessment  of  such  of  these 
local  public  utilities  as  extended  into  more  than  one  district.' 
The  commission  now  collects  data  relative  to  the  value  of  the 
properties  and  the  value  within  each  district  and  transmits  these 
tentative  values  to  a  meeting  of  the  assessors  of  all  the  districts 
concerned.*  A  member  of  the  commission,  its  secretary,  one  of 
its  engineers  or  a  trusted  assessor  of  incomes  is  present  at  the 
meeting.    The  local  assessors  then  formally  assess  the  properties 

*  81  Wis.  554.  Cf.  list  of  decisions  cited  in  Wisconsin  Tax  Commission,  Report, 
1909,  p.  92,  note. 

*  Laws  of  Wisconsin,  1899,  ch.  283,  and  ibid.,  1901,  ch.  263. 
^  Ibid.,  1911,  ch.  611. 

*  Personal  Letter  from  T.  S.  Adams,  June  20,  1916. 


270  THE  STATE  TAX  COMMISSION 

and  the  commission  acts  as  a  board  of  review  upon  their  results. 
Although  the  local  ofl&cials  may  make  slight  modifications  for 
the  purpose  of  asserting  their  independence,  the  result  is  virtually 
a  central  assessment.  The  retention  of  the  local  assessor  is  an 
unnecessary  compKcation  from  the  standpoint  of  efficiency;  but 
it  has  doubtless  been  a  wise  compromise  in  view  of  the  recent  re- 
action against  central  administration.  After  all,  such  an  arrange- 
ment, though  it  may  seem  cumbersome,  presents  the  distinct 
advantage  of  conciliating  those  who  oppose  the  extension  of 
central  authority  while  it  secures  virtually  a  central  assessment. 

Supervision  of  the  Local  Officials 

The  weakness  of  decentralized  administrative  organization  in 
Wisconsin  was  clearly  perceived  by  the  special  tax  commission 
of  1898  and  its  insight  into  the  course  of  events  is  shown  by  the 
recommendation  offered  relative  to  central  supervision. ^  This 
recommendation  was  instrumental  in  shaping  the  supervisory 
features  of  the  law  of  1899,  but  the  language  of  the  statute  was 
too  vague  to  warrant  the  commission  in  attempting,  at  the  out- 
set, "  rigid  supervision  "  over  the  local  tax  system.  For  the  first 
few  years  after  1899,  therefore,  central  supervision  of  local  assess- 
ments was  of  the  advisory  type  such  as  had  appeared  in  Indiana. 
With  the  reorganization  of  the  tax  department  in  1905  the  legis- 
lature extended  these  powers,  and  at  the  present  time  the  Wis- 
consin commission  is  in  a  position  to  exert  direct  influence  upon 
the  original  local  assessments. 

1  Professor  Seligman  characterizes  this  report  as  negative  rather  than  positive 
on  matters  of  principle.  This  may  apply,  perhaps,  to  its  attitude  on  the  taxation 
of  corporations;  but  it  certainly  does  not  apply  to  the  commission's  attitude  on 
the  question  of  administrative  centralization,  with  close  central  supervision  over  the 
local  assessment  process.  Cf.  Sehgman,  Essays  in  Taxatioji,  8th  ed.,  1913,  p.  616. 
This  is  shown  by  the  following  recommendation: 

"  That  the  entire  administration  of  the  tax  laws  be  placed  in  the  hands,  or  at 
least  under  rigid  supervision  of  capable  and  disinterested  agents  of  the  state,  to  be 
so  chosen  and  to  have  such  tenure  of  office  and  compensation  as  to  make  them 
virtually  free  from  the  influence  of  political  or  popular  favor  or  displeasure  and 
enable  them  to  give  their  entire  time  to  official  duty;  such  agents  to  consist  of  a 
state  board  or  ofiicer  and  such  subordinate  or  district  officers  as  may  be  necessary." 
Report  of  the  Wisconsin  State  Tax  Commission  of  i8g8,  p.  182. 


TAX  COMMISSION  OF  WISCONSIN  27 1 

The  commission's  advisory  relations  with  the  local  officials 
were  established  through  the  means  most  commonly  used  for 
that  purpose,  viz.,  correspondence,  the  issue  of  printed  instruc- 
tions, and  official  visits  to  the  various  taxing  districts  for  confer- 
ences with  individuals  or  groups  of  local  officials.  One  of  the  first 
acts  of  the  new  tax  department  was  an  extensive  investigation  of 
undervaluation  in  local  assessments,  conducted  mainly  through  a 
voluminous  correspondence.  Some  i2^coo  letters  were  sent  out 
to  property  holders  and  various  local  officials.  While  this  corre- 
spondence afforded  an  effective  means  of  communication  between 
the  commission  and  the  assessors,  it  should  be  noted  that  the 
emphasis  in  these  letters  was  upon  the  information  sought  by  the 
commission  and  not  upon  the  advice  needed  by  the  local  officials, 
though  the  very  broadcasting  of  extensive  and  searching  inquiries 
doubtless  had  a  stimulating  effect  upon  the  latter.  The  commis- 
sion admitted  that  its  attention  had  been  directed  at  first  chiefly 
to  the  problems  of  equalization  and  corporate  assessment,  to. the 
neglect  of  local  supervision.'  In  the  general  correspondence  some 
attention  was  given,  of  course,  to  the  problems  presented  by  the 
assessors  and  the  files  of  the  early  letters  and  decisions  contain 
many  helpful  suggestions  and  instructions  for  the  guidance  of  the 
local  officials.  The  rulings  on  important  points  were  frequently 
manifolded  and  sent  to  other  districts  in  which  the  same  problems 
were  hkely  to  arise.  The  correspondence  was  supplemented  by 
a  more  formal  pamphlet  of  official  instructions,  in  which  especial 
emphasis  was  laid  upon  the  assessors'  right  of  "  doomage  "  as  a 
means  of  reaching  intangibles. 

The  next  step  in  the  development  of  the  supervisory  function 
was  the  provision  for  a  county  supervisor  of  assessments  in  1901. 
At  this  point  the  example  of  Indiana  was  doubtless  influential. 
The  delegates  from  Indiana  to  the  Buffalo  Conference  on  Taxa- 
tion in  1 90 1  were  loud  in  their  praises  of  the  Indiana  system  and 
representatives  from  other  states  were  much  impressed  thereby .^ 
The  county  supervisor  of  assessments  was  to  be  chosen  for  a  three- 

^  Wisconsin  Tax  Commission,  Report,  1901,  p.  136. 

*  Cf.  Report  of  Proceedings,  National  Conference  on  Taxation,  Buffalo,  1901, 
passim. 


272  THE  STATE  TAX  COMMISSION 

year  term  by  the  county  board. ^  He  was  to  be  removable  by 
that  board  for  cause,  and  was  to  receive  a  salary  fixed  by  the 
board.2  He  was  given  full  and  complete  powers  of  supervision 
and  direction  of  the  work  of  city,  town,  and  village  assessors,  who 
were  to  be  assembled  annually  before  the  beginning  of  the 
assessment  season  for  conference  and  instructions.  A  potential 
check  upon  the  assessors'  work  was  provided  by  requiring  the 
supervisor  to  visit  the  taxing  districts  during  the  assessment 
period  and  to  test  the  quality  of  the  former's  results  by  making 
independent  sample  assessments  or  by  reassessing  a  whole  dis- 
trict. Omitted  properties,  when  found,  were  to  be  reported  to 
the  assessor  or  to  the  county  board  at  its  annual  meeting.  The 
tax  commission  was  to  exercise  a  general  supervision  over 
the  county  supervisors  and  was  required  to  convene  them  at  the 
state  capital  for  an  annual  conference  which  was  to  precede  the 
county  assemblies  of  the  local  assessors. 

The  more  direct  contact  between  state  and  local  officials  which 
the  county  supervisors  afforded  resulted  in  an  immediate  im- 
provement in  the  local  assessments.  In  1901  the  ratio  of  local  to 
state  assessment  was  75.39  per  cent;  in  1902  it  was  91.08  per 
cent.  This  gain  could  not  be  held,  however,  and  the  local  assess- 
ments began  at  once  a  relative  decHne  which  carried  them  by 
1909  to  61.99  per  cent  of  the  state  assessment.  For  this  reaction 
there  were  several  reasons. 

In  the  first  place,  the  rapid  improvement  in  local  assessments 
from  1900  to  1902  was  due,  in  some  measure,  to  the  presence  of 
state  supervision,  the  novelty  of  which  made  it  effective  just  as  a 
"  new  broom  sweeps  clean."  But  greater  familiarity  with  this 
new  department,  and  especially  with  the  limitations  upon  its 
powers,  dulled  the  edge  of  its  suggestions  and  the  old  influences 
again  resumed  sway  over  the  assessors. 

A  second,  and  in  some  respects  the  most  important,  of  the 
causes  for  the  reaction  is  to  be  found  in  the  nature  of  the  local 
administrative  organization.  The  system  of  small  assessment  dis- 

1  Laws  of  Wisconsin,  1901,  ch.  445;  effective  Jan.  i,  1902. 
*  In  1905  the  legislature  had  to  establish  a  maximum  and  minimum  range  for 
these  salaries.    Laws  of  Wisconsin,  1905,  ch.  523. 


TAX  COMMISSION  OF  WISCONSIN  273 

tricts,  each  with  an  underpaid  and  frequently  an  inefficient 
assessor  who  is  occupied  with  the  work  for  only  a  small  part  of 
the  year,  has  been  outgrown  everywhere.  The  collapse  of  such  a 
system  has  been  the  more  complete  when,  as  has  usually  been  the 
case,  the  local  districts  have  elected  their  own  assessors.  The 
latter  may  thus  be  entirely  immune  to  any  progressive  influences 
emanating  from  the  central  authority,  while  they  are  frequently 
entirely  too  amenable  to  the  pressure  of  powerful  local  interests. 
This  condition  existed  in  Wisconsin  and  in  many  cases  failed  of 
correction  through  the  county  supervisors  of  assessment,  who 
were  sometimes  in  sympathy  with  local  sentiment.  In  1901  the 
commission  outlined  several  features  of  a  plan  then  under  con- 
sideration for  remedying  undervaluation. ^  One  alternative  was 
the  abolition  of  the  existing  method  of  choosing  assessors  and  the 
substitution  of  some  mode  of  selection  calculated  to  secure  more 
efficient  men  and  make  them  free  from  poHtical  and  local  in- 
fluence, with  tenure  of  office  to  depend  upon  efficiency.  This 
feature  of  the  commission's  dream  of  administrative  reform  has 
finally  been  realized  in  the  income  tax  assessors.  Other  sugges- 
tions advanced  in  1901  have  not  yet  materiahzed;  for  instance, 
larger  assessment  districts,  less  frequent  assessments,  longer  time 
for  making  the  assessment,  and  sufficient  compensation  to  com- 
mand the  services  of  competent  men. 

Finally,  it  must  be  remembered  that  the  commission  was  deal- 
ing with  the  general  property  tax  and  it  is  doubtful  if  even  the 
strictest  measures  would  have  sufficed  to  prevent  evasion  and 
undervaluation  as  long  as  the  uniform  rule  was  in  force.  Ohio's 
recent  experiment  with  an  actual  state  assessment  of  all  property 
was  not  successful  in  securing  all  intangible  property. ^  It  was 
still  too  early  to  talk  of  abandoning  the  general  property  tax  in 
Wisconsin  in  1902,  and  the  commission's  suggestions  for  local 
administrative  reform  were  destined  to  be  accepted  but  slowly. 
Its  real  problem,  therefore,  was  to  get  the  most  out  of  the  general 
property  tax  with  the  local  officials  at  its  disposal.  Compara- 
tively little  could  be  done  to  combat  the  local  and  special  interests 

^  Wisconsin  Tax  Commission,  Report,  iqoi,  pp.  151,  152. 
*  Cf.  below,  pp.  506,  507,  510. 


274  ^^^  STATE  TAX  COMMISSION 

which  were  pressing  for  improper  standards  of  local  assessment. 
The  indefinite  and  sometimes  sinister  character  of  these  influences 
prevented  effective  open  attack,  while  the  short  term,  small  pay, 
popular  election,  and  low  standards  of  service  prevented  any- 
substantial  development  of  an  official  esprit  de  corps  —  pride 
in  the  establishment  and  maintenance  of  better  assessment 
standards. 

The  very  crudeness  of  the  local  assessors  suggests,  however,  one 
possibility  of  which  more  might  have  been  made,  though  in  view 
of  the  other  circumstances  it  is  of  doubtful  wisdom.  This  is  a 
greater  attempt  to  educate  and  train  the  assessor  for  his  work  and 
to  provide  him  with  pertinent  information  relative  to  values. 
The  commission  was  in  possession  of  considerable  masses  of  data 
on  values  in  each  tax  district  which  might  have  been  made  acces- 
sible, in  a  form  that  would  have  been  of  service  to  the  assessors. 
The  additional  expense  should  be  considered,  and  it  is  not  at  all 
certain  that  the  results  would  have  justified  the  outlay,  since  the 
people  would  probably  have  retired  the  assessors  as  fast  as  they 
came  to  know  enough  about  their  work  to  do  it  satisfactorily.  The 
fact  is,  all  of  the  circumstances  in  the  case  made  a  slump  in- 
evitable, and  the  commission  was  compelled  to  spend  several 
years  of  solid  constructive  and  educational  work  before  the  people 
were  ready  to  abandon  the  general  property  tax,  and  to  intrust 
the  central  authority  with  the  administrative  control  of  the 
substitutes  for  the  old  system.^ 

A  more  advanced  stage  of  central  supervision  began  in  1905 
with  the  passage  of  two  laws  providing  for  the  review  of  local 
assessments  in  certain  cases  of  appeal.  The  first  of  these  measures 
related  to  appeals  brought  by  any  taxing  district  against  the 
action  of  the  county  board  of  review.'^  The  commission  was 
authorized  to  hold  a  preliminary  hearing  with  power  to  order  a 
reassessment  upon  the  production  of  sufficient  evidence.  The 
appeal  was  to  be  brought  by  the  officials  of  the  district,  in  the 
name  of  the  district,  and  the  expense  was  to  be  charged  to 

^  Cowles  and  Leenhouts,  How  to  Assess  Property  in  Cities  and  Rural  Towns,  1914. 
This  pamphlet,  by  members  of  the  commission's  staff,  is  a  good  example  of  the 
later  educational  material  being  issued. 

'  Laws  of  Wisconsin,  1905,  ch.  474. 


TAX  COMMISSION  OF  WISCONSIN  275 

the  county  in  the  next  apportionment  of  taxes.  If  a  reassessment 
were  justified  the  commission  proceeded  to  review  and  reassess 
the  property,  but  its  jurisdiction  extended  only  to  the  classes  of 
property  specified  in  the  appeal  and  the  result  affected  only  the 
apportionment  of  the  state  and  county  tax.  The  original  assess- 
ment held  for  the  levy  of  all  local  taxes.  In  conducting  such 
investigations,  the  commission  and  its  assistants  and  experts 
were  to  exercise  all  of  the  powers  of  assessors,  including  the 
power  to  list  property. 

The  fact  that  the  cost  is  a  charge  against  the  county  has  re- 
stricted the  use  of  this  form  of  appeal,  since  the  expense,  if  the 
appeal  were  granted,  might  exceed  the  amount  by  which  the  dis- 
trict could  hope  to  reduce  its  proportion  of  the  state  and  county 
taxes.  The  problem  before  the  commission  has  been  the  develop- 
ment of  a  means  of  reviewing  the  work  of  assessment  without 
making  the  cost  prohibitive  to  the  districts.  On  the  other  hand, 
the  procedure  has  been  simplified  by  transferring  the  jurisdiction 
in  such  appeals  from  the  circuit  court  to  the  commission.  This 
transfer  may  be  expected  to  promote  the  interests  of  all  con- 
cerned, for  it  is  reasonable  to  suppose  that  with  the  information 
in  its  possession,  or  readily  accessible  to  it,  the  commission  could 
make  a  better  reassessment  than  the  appointees  of  a  court. 

Under  this  chapter,  fifteen  appeals  were  brought  in  1913-14,  of 
which  the  commission  entertained  twelve.^  In  ten  cases  it  was 
possible  to  make  the  necessary  adjustments  from  the  commis- 
sion's sales  data  with  a  small  number  of  inspections,  thereby 
reducing  the  expense.  In  two  counties  more  thorough  reassess- 
ment was  necessary.  One  town  was  found  to  be  charged  with 
$4,443  more  than  its  proportion,  while  another  was  escaping  with 
$4,110  less  than  its  fair  share  of  state  and  county  taxes  in  1913. 

The  second  form  of  appeal  provided  for  in  1905  permitted  any 
individual  to  complain  to  the  tax  commission  against  the  action 
of  a  district  board  of  review.^  In  these  cases  the  commission  was 

*  Wisconsin  Tax  Commission,  Report,  1914,  p.  39.  Eight  appeals  were  brought 
in  191 5-16.  One  of  these  was  dismissed  and  one  was  settled  in  accordance  with 
the  commission's  suggestions.  The  disposition  of  the  others  is  not  recorded.  Report, 
1916,  pp.  16,  17. 

*  Laus  of  Wisconsin,  1905,  ch.  259. 


276  THE  STATE  TAX  COMMISSION 

authorized  to  order  a  reassessment  of  all  property  of  a  district, 
or  of  any  classes  of  property,  whenever  it  appeared  that  the  law 
had  not  been  complied  with,  or  that  the  interests  of  the  pubhc 
would  be  served  by  a  reassessment.  The  revaluation  was  to  be 
made  by  properly  qualified  persons  appointed  by  the  commission, 
who  were  to  have  all  of  the  powers  of  assessors.  The  county 
supervisors  of  assessments  were  to  exercise  all  of  their  usual 
powers  but  the  assessments  were  to  be  reviewed  by  a  special 
board  of  review  appointed  by  the  tax  commission.  Six  reassess- 
ments were  ordered  under  this  chapter  in  1906.  An  aggre- 
gate original  assessment  for  the  six  districts  of  $2,927,791  was 
advanced  to  $3,407,203,  or  an  increase  of  $479,412.^ 

The  chapter  fell  into  disuse  after  1906  owing  to  a  suggestion 
from  the  supreme  court,  sustained  by  the  attorney-general,  that 
it  was  unconstitutional.  Two  members  of  the  commission  agreed 
with  this  interpretation  and  declined  to  entertain  jurisdiction  in 
further  appeal  cases. ^  The  legislature  of  1909  refused  to  repeal 
the  measure  and  the  courts  later  upheld  it.^  From  this  decision, 
in  November,  1910,  to  the  end  of  1914  the  commission  received 
nearly  one  hundred  appeals  and  granted  about  one- third  of  them. 
The  conditions  in  Janesville  and  Racine  are  illustrative  of  the 
results  discovered  in  these  reassessments : 

Results  of  Reassessment  in  Janesville  and  Racine  * 

Janesville,  igii       Racine,  igi2 
Property  group  %  of  true  value    %  of  true  value 

All  personalty,  average ssh 

Real  estate 72 

Automobiles 885  41 

Pianos  and  organs 31I 

Bank  stock 80  695 

Moneys  and  credits 17 

Merchants'  stock 55 

Horses 12^ 

Wagons,  carriages,  sleighs 20 

All  other  personalty 33^ 

'  Wisconsin  Tax  Commission,  Report,  1907,  p.  12.  ^  Ibid.,  1910,  p.  17. 

'  State  ex  rel.  Hessey  v.  Daniels,  143  Wis.  649,  128  N.  W.  Rep.  565. 

*  This  table  is  compiled  from  the  data  given  in  Wisconsin  Tax  Commission, 
Report,  1914,  pp.  31,  32.  The  reassessments  included  only  those  classes  of  property 
for  which  percentages  are  given. 


}- 


TAX  COMMISSION  OF  WISCONSIN  277 

Concerning  the  general  results  of  the  reassessments  of  1913-14, 
the  commission  said : ' 

The  inequality  between  different  classes  of  property  in  individual  dis- 
tricts was  much  more  pronounced  and  the  range  in  the  ratios  of  assessed  to 
true  value  much  greater  (than  the  average,  which  has  just  been  discussed). 
.  .  .  Still  greater  inequality  is  shown  between  specific  individual  assess- 
ments of  the  same  class  held  under  different  ownerships.  Higher  assess- 
ments in  the  case  of  small  and  inexpensive  as  compared  with  larger  and  more 
valuable  properties  are  almost  universal. 

This  situation  may  v^^ell  raise  the  question  w^hether  local  assess- 
ment of  property  can  ever  be  brought  to  the  standard  set  by  the 
law.  It  is  useless  novv^  to  talk  of  abandoning  the  principle  of  local 
assessment  in  Wisconsin,  so  it  remains  to  be  seen  what  changes 
can  be  introduced  that  will  permit  of  the  further  correction  of 
these  inequalities.  In  the  first  place,  certain  signs  of  improve- 
ment have  appeared  in  the  last  few  years.  The  aggregate  local 
assessment  increased  by  $1,212,301,188  from  19 10  to  19 16.  The 
local  assessment  of  personal  property  in  191 1,  the  last  year  in 
which  moneys  and  credits,  farm  machinery,  and  household  goods 
were  taxable,  was  $366,870,379.  Notwithstanding  these  exemp- 
tions, the  total  assessment  of  personal  property  increased  to 
$510,137,587  by  1916.2  The  progress  of  local  assessments  is  shown 
by  the  improvement  of  the  local  ratios  of  assessed  to  true  value. 
The  following  table  shows  the  number  of  counties  in  each  per- 
centage group  since  191 1: 

Progress  in  the  Local  Assessment  of  all  Property,  1911-16' 

Classification  1911  1Q12  1913  1914  191S  1916 

Number  of  Cos.  over  85  % 4  18  16  14  24 

"      "     75%-84%-.     3  13  19  28  31  20 

"        "      "     6s%-74%...    14  14  17  21  22  22 

"        "      "     under  65%...    54  40  17  6  45 

Average  ratio 64.86  73.20  81.78  82.66  83.32      84.43 

The  principal  difficulty  has  been,  and  will  be,  caused  by  the 
various  classes  of  personal  property;  and  further  exemptions  of 
these  classes  would  be  an  easy  and  obvious  remedy.*    State 

^  Wisconsin  Tax  Commission,  Report,  1914,  p.  33. 

^  Ibid.,  1916,  pp.  158  ff.  '  Ibid.,  1914,  p.  48;  ibid.,  1916,  p.  157. 

*  The  commission  has  recommended  this  action,  but  it  has  also  pointed  out  that 
it  would  probably  work  hardship  in  the  rural  districts  and  smaller  cities,  where  per- 


278  THE  STATE  TAX  COMMISSION 

assessment  of  incomes  has  apparently  been  permanently  adopted 
and  the  efficient  results  which  have  been  obtained  stand  as  a 
guarantee  against  the  escape  of  much  taxable  capacity  through 
the  additional  exemptions.  There  is  Httle  likelihood,  however, 
that  the  assessment  of  personal  property  will  be  wholly  aban- 
doned or  even  that  the  present  list  of  exemptions  will  be  greatly 
extended.  The  commission's  chief  reliance,  therefore,  for  the 
further  improvement  of  local  assessments  is  upon  the  influence 
and  watchfulness  of  the  income  tax  assessors,  in  their  capacity  of 
county  supervisors  of  assessment.  These  officers  have  approached 
the  problem  of  local  supervision  in  a  different  spirit  and  from  a 
different  standpoint  than  the  locally  elected  supervisors.  Their 
inspection  of  the  local  results  has  been  much  more  efficient,  their 
guidance  of  the  assessors  more  intelligent  and  satisfactory.  Much 
of  the  progress  that  has  been  made  in  local  assessments  since  191 1 
has  been  due  to  their  services. 

The  Income  Tax 

The  experiences  of  the  American  states  with  the  income  tax 
have  been  in  general  very  unsatisfactory,  although  widespread 
efforts  have  been  made  to  utilize  this  method  of  raising  revenue, 
so  attractive  in  theory  and  so  successful  in  some  other  countries. 
The  failure  of  state  income  taxes  has  generally  been  attributed  to 
defective  administration,  caused  by  the  loopholes  of  self-assess- 
ment, the  indifference  of  officials,  the  persistent  efforts  of  some 
taxpayers  to  evade  the  tax,  and  the  nature  of  some  incomes  which 
increased  the  difficulty  of  assessment.'  The  Wisconsin  special 
tax  commission  of  1898  found  no  strong  sentiment  in  favor  of  an 
income  tax  and  regarded  even  the  discussion  of  the  subject  as 
unprofitable.^    Because  of  the  numerous  failures  of  this  form  of 

sonal  property  is  still  about  25  per  cent  of  the  total  valuation,  and  the  element  of 
"  unearned  increment "  is  least  important.  Wisconsin  Tax  Commission,  Report, 
1914,  p.  129;  ibid.,  1916,  ch.  IV. 

^  Cf.  Kinsman,  The  Income  Tax.  Professor  Seligman  holds  that  the  real  diffi- 
culty was  not  defective  administration  but  the  impossibility  of  localizing  personalty 
or  income.  He  has  pronounced  any  attempt  to  construct  a  successful  state  income 
tax  "  well-nigh  hopeless."  The  Income  Tax,  191 1,  pp.  425-429.  Cf.  his  "Annual 
Address,"  in  Proceedings  of  the  National  Tax  Conference,  1914,  p.  196. 

*  Report  of  the  Wisconsin  State  Tax  Commission  of  i8q8,  p.  168. 


TAX  COMMISSION  OF  WISCONSIN  279 

taxation,  therefore,  and  the  early  apathy  on  the  subject  in  Wis- 
consin, the  recently  enacted  income  tax  law  assumes  new  signifi- 
cance as  a  daring  experiment  in  a  field  strewn  with  disasters. 
The  way  was  opened  for  the  experiment  by  a  constitutional 
amendment  of  1908.  The  tax  commission  had  apparently  taken 
little  part  in  the  agitation  preceding  the  passage  of  this  amend- 
ment, as  practically  no  mention  of  an  income  tax  occurs  in  any 
report  previous  to  this  time,  and  in  1909  it  confessed  to  but  hazy 
ideas  regarding  the  kind  of  law  that  should  be  passed.^  Once  such 
a  tax  was  made  possible,  however,  the  commission  took  up  with 
enthusiasm  the  study  of  the  subject  and  the  resulting  enactment 
was  very  largely  its  product.^ 

A  detailed  analysis  of  the  bill  is  unnecessary.^  Every  effort  was 
made  to  avoid  the  weakness  that  had  been  the  downfall  of  other 
state  income  taxes,  and  the  distinguishing  feature  of  the  Wiscon- 
sin measure  was  centralized  administration.  Special  assessors  of 
income  were  provided,  to  be  appointed  and  removed  by  the  tax 
commission.  All  appointments  were  to  be  made  from  a  civil  ser- 
vice list.  This  marks  the  first  effort  that  has  been  made  anywhere 
to  take  the  work  of  assessment  out  of  politics,  and  it  is  in  most 
wholesome  contrast  with  the  recent  Ohio  experiment,  wherein 
the  appointment  of  county  assessors  was  based  almost  altogether 
upon  poKtical  grounds.  The  Wisconsin  commission  may  divide 
the  state  into  income  tax  districts  consisting  of  one  or  more 
counties,  but  no  county  may  be  subdivided.  Forty-one  districts 
have  been  made,  each  in  charge  of  an  income  assessor.  Of  the 
first  appointees,  nineteen  had  had  previous  experience  as  super- 
visors of  assessment,  an  office  the  duties  of  which  were  by  this 
chapter  transferred  to  the  new  income  assessors. 

A  complete  presentation  and  discussion  of  the  results  thus  far 
achieved  under  the  income  tax  is  superfluous  in  this  connection. 
With  state  administration  the  income  tax  in  Wisconsin  is  proving 
successful.  The  defects  which  have  been  encountered  have  not 
been  of  a  fundamental  character  and  further  experience  will 

'  Wisconsin  Tax  Commission,  Report,  1909,  p.  17. 
2  Laws  of  Wisconsin,  1911,  ch.  658. 

^  An  analysis  of  the  law,  by  K.  K.  Kennan,  is  found  in  Ann.  Amer.  Acad.,  58, 
pp.  65-76. 


28o  THE  STATE  TAX  COMMISSION 

reveal  the  improvements  which  are  best  suited  to  Wisconsin  con- 
ditions. The  cost  of  administration  has  been  very  low,  as  is 
shown  by  the  following  figures : 

Relation  of  Cost  of  Administration  of  Income  Tax  ^  to  the  Amount 
OF  Taxes  Assessed  and  Collected 

Ratio  of  1912-13  1913-14  1914-1S  1915-16 

Cost  to  tax  assessed 1-31%         i-n%         1.06%         1.30% 

Cost  to  tax  collected 2.77  2.33  2.20  2.62 

The  apparent  discrepancy  here  is  due  to  the  considerable  offset  of 
income  tax  by  the  payment  of  taxes  on  taxable  personal  property. 
In  1914  about  46  per  cent  of  the  total  tax  assessed  was  offset  in 
this  way.  In  fifty-two  counties  more  income  tax  was  paid  by 
personalty  tax  receipts  than  by  cash.^ 

Wisconsin's  experience  with  the  income  tax  is  overthrowing 
some  of  the  long-accepted  notions  regarding  tax  administration 
and  strengthening  the  authority  of  other  principles  as  yet  less 
widely  held.  The  possibility  of  a  successful  state  income  tax  is  in 
a  fair  way  to  be  demonstrated,  though  the  consensus  of  opinion 
has  been  against  the  use  of  this  tax  by  the  states.^  Also,  the  prin- 
ciple of  stoppage  at  the  source  is  shown  to  be  practicable,  as  about 
75  per  cent  of  the  tax  was  estimated  to  have  been  collected  in  this 
way  in  191 2.*  The  results  also  demonstrate  the  willingness  of 
property  owners  to  make  true  returns  rather  than  false,  provided 
the  penalty  for  honesty  be  not  confiscation.  A  moderate  rate  on 
incomes  will  yield,  it  is  asserted,  more  than  the  former  property 
tax  at  exorbitant  rates.*  On  the  other  hand,  it  is  equally  clear 
that  the  salvation  of  the  income  tax  has  been  in  the  strong,  able, 
and  impartial  central  administration  which  it  has  received. 
Under  the  decentrahzed  administration  once  so  prevalent  the 
personal  property  tax  broke  down  because  the  assessor's  power 
to  search  out  property  was  negatived  by  the  taxpayer's  control 
over  him.   The  income  tax  assessor  has  become  an  impartial  and 

^  Wisconsin  Tax  Commission,  Report,  1914,  p.  126;  ibid.,  1916,  p.  69.  Cf.  ihid., 
1916,  ch.  3,  for  some  valuable  material  on  the  distribution  of  the  tax  by  income 
groups  and  by  classes. 

"  Ibid.,  pp.  127,  128. 

^  Cf.  Seligman,  op.  cil.,  pp.  425-429,  and  reference  cited. 

^  Wisconsin  Tax  Commission,  Report,  191 2,  p.  42.  ^  Ibid.,  p.  41. 


TAX  COMMISSION  OF  WISCONSIN  28 1 

courteous,  but  rather  formidable  investigator,  free  from  domina- 
tion by  any  local  interest.  Whether  such  a  standard  of  adminis- 
trative efficiency  could  actually  be  established  and  maintained 
in  all  other  states  is  uncertain,  and  for  any  such  states  the  income 
tax  might  soon  go  the  way  of  the  personal  property  tax.^ 

The  Inheritance  Tax 

The  special  tax  commission  of  1898  had  recommended  an  in- 
heritance tax  as  a  more  satisfactory  means  than  the  income  tax 
for  counteracting  the  loss  of  revenue  and  the  inequality  of  inci- 
dence occasioned  by  the  personal  property  tax.^  Such  a  law  was 
passed  in  1899,^  but  was  declared  unconstitutional  on  the  ground 
of  unreasonable  and  unlawful  classifications.*  In  1903  the  present 
law  was  enacted  and  the  former  defects  were  so  successfully  over- 
come that  the  statute  was  upheld  by  the  state  courts.^  Indeed, 
one  student  of  inheritance  tax  legislation  has  declared  that  the 
Wisconsin  law  of  1903  far  surpassed  any  earlier  law  in  the  scien- 
tific character  of  its  provisions.*^  This  eulogy  appHed  at  the  time 
more  particularly  to  the  adjustment  of  rates  and  classes  of  lega- 
tees, and  not  to  the  administrative  features,  which  were  left  in 
rather  uncertain  status  until  191 1,  when  the  tax  commission  was 
placed  in  charge.^  Provision  was  also  made  for  an  inheritance  tax 
investigator,  to  be  chosen  under  civil  service  rules  and  to  be  paid 
a  salary  of  $3000  and  expenses.  His  duties  were  thus  summed  up 
by  the  commission :  ^ 

The  present  inheritance  tax  investigator  serves  as  counsel  to  public  ad- 
ministrators in  the  several  counties,  appearing  personally  at  the  hearings 

*  Cf.  the  interesting  analysis  by  Professor  Bullock  of  the  conditions  under 
which  the  income  tax  should  be  used,  Taxation  in  Washington,  pp.  231-239;  also, 
the  same  writer's  statement  in  Proceedings  of  the  National  Tax  Conference,  1916, 

PP-  374-384- 

*  Report  of  the  Wisconsin  State  Tax  Commission  of  iSgS,  pp.  160-168. 
'  Laws  of  Wisconsin,  1899,  ch.  355. 

*  Black  V.  State,  113  Wis.  205. 

*  Laws  of  Wisconsin,  1903,  ch.  44;  Nunnemacher  v.  Stale,  129  Wis.  190. 

*  Huebner,  "  The  Development  of  Inheritance  Taxes  in  the  United  States." 
Quart.  Jour.  Econ.,  xviii,  p.  529. 

^  Laws  of  Wisconsin,  191 1,  ch.  450. 

*  Wisconsin  Tax  Commission,  Report,  191 2,  p.  60. 


282  THE  STATE  TAX  COMMISSION 

in  the  larger  estates  and  in  case  of  conveyances  made  in  contemplation  of 
death,  or  made  to  evade  the  tax;  counsels  with  the  county  judges  as  to  the 
enforcement  of  the  law;  handles  the  correspondence  and  negotiations  with 
foreign  estates;  examines  the  facts  and  issues  permits  to  transfer  stocks  and 
other  personal  property  where  it  is  found  that  no  tax  is  due;  and  reports  to 
the  attorney-general  such  litigated  cases  as  involve  appeals  to  the  circuit 
courts  and  supreme  court. 

Investigation  op  the  State  Finances,  and  Supervision 
OF  Local  Accounting 

The  first  step  in  the  direction  of  a  complete  reform  of  the  state's 
budgetary  practice  was  taken  in  1909,  when  the  legislature  by 
a  joint  resolution  requested  the  commission  to  investigate  and 
report  upon  the  finances  of  the  state  government.  A  special 
report  was  published  on  this  subject  in  191 1,  of  which  only  the 
principal  recommendations  can  be  given  space.  They  may  be 
summarized  as  follows :  ^ 

1.  The  payment  of  the  state  debt; 

2.  Consolidation  of  all  of  the  active  funds  of  the  state  for  disbursement 
purposes; 

3.  Uniform  classification  of  expenditures,  by  departments,  according  to 
the  purposes  of  the  outlays; 

4.  Centralized  audit  system  for  all  state  boards  and  commissions  under 
the  direction  of  the  secretary  of  state; 

5.  The  installation  of  a  uniform  system  of  departmental  and  institu- 
tional accounts  under  the  direct  supervision  of  some  administrative 
office; 

6.  Creation  of  a  budget  board  charged  with  the  duty  of  preparing  ap- 
propriation bUls. 

These  suggestions  are  all  of  great  value  for  the  reform  of  the 
state  financial  administration.  It  is  as  essential  that  money  be 
spent  wisely  as  that  it  be  raised  with  the  least  burden  and  in  the 
most  effective  and  equitable  manner.  The  reforms  in  taxation 
should  be  supplemented  by  such  improvements  as  the  commission 
has  recommended,  in  order  to  secure  a  well-rounded  financial 
system. 

The  commission  had  already  been  authorized  in  1905  to  require 
from  counties,  cities,  and  towns  a  report  of  expenditures,  to 
inquire  into  the  system  of  accounting  used  by  the  local  units,  and 

^  Wisconsin  Tax  Commission,  Special  Report  on  the  State  Finances,  191 1,  pp. 
18-20. 


TAX  COMMISSION  OF  WISCONSIN  283 

to  prescribe  a  uniform  system  of  accounting  for  them.^  This 
authority  was  broadened  and  made  more  definite  in  191 1.2  The 
adoption  of  the  accounting  system  and  the  audit  of  the  local 
finances  is  purely  voluntary  with  the  local  units,  but  the  installa- 
tions are  proceeding  about  as  rapidly  as  the  commission  can 
handle  them.  To  the  end  of  19 16  voluntary  contracts  had  been 
made  with  twenty-four  cities,  twenty-four  counties,  eleven  vil- 
lages and  thirty-three  towns.^  The  expense  of  the  installation  is 
borne  by  the  local  unit.  The  most  serious  situation  disclosed  by 
the  investigation  and  audit  of  the  local  records  has  been  the 
absence  of  any  adequate  audit  of  local  expenditures.  Not  only 
have  many  innocent  shortages  been  found,  but  as  well  some 
serious  defalcations,  the  amount  of  which  in  one  case  was  more 
than  $70,000.  The  alarming  increase  of  local  tax  rates  and  local 
debts  renders  accuracy  and  honesty  in  the  expenditure  of  public 
moneys  most  necessary;  and  these  standards  are  not  attainable 
without  sound  accounting  methods  and  reliable  and  impartial 
audits. 

Recommendations 

No  tax  commission  in  the  United  States  enjoys  a  higher  posi- 
tion in  the  respect  of  the  legislature  and  the  people  than  the 
Wisconsin  commission.  This  position  has  been  won  by  the  com- 
mission's own  ability  and  sound  sense.  It  has  become  a  real 
leader  in  shaping  both  the  policy  and  the  details  of  financial 
legislation,  and  thus  far  it  has  encountered  no  serious  objections 
even  when  its  recommendations  have  involved  large  extensions 
of  its  own  power.  The  legislature  of  1914-15  was  decidedly 
reactionary  in  tone,  but  the  tax  commission  and  its  progressive 
legislation  were  spared. 

A  detailed  review  of  the  commission's  recommendations  is 
unnecessary  here,  as  they  have  been  noticed  in  the  appropriate 
connections  above.  It  suffices  to  say  that  the  tax  commission  has 
practically  recast  the  tax  laws  of  Wisconsin,  and  has  introduced 
some  of  the  most  effective  administrative  and  fiscal  measures  to 
be  found  in  any  state. 

1  Laws  of  Wisconsin,  1905,  ch.  380.  *  Ibid.,  1911,  ch.  523. 

'  Wisconsin  Tax  Commission,  Report,  1916,  p.  115. 


284 


THE  STATE  TAX  COMMISSION 


APPENDIX  A 


Extracts  from  Personal  Letter  of  Mr.  A.  E.  James,  Chief  Statistician 
TO  THE  Wisconsin  Tax  Commission.     February  24,  1914 

The  case  came'before  us  in  the  form  of  an  appeal  from  the  equalization  of 
the  county  board.  We  did  not  feel  justified  in  relying  upon  our  sales  data 
for  the  readjustment  of  this  equalization  and  inspectors  were  appointed 
with  instructions  to  make  a  thorough  examination  by  sample  assessments  of 
the  various  classes  of  land  in  the  several  towns  of  the  county  for  the  purpose 
of  computing  a  true  value  in  each  of  those  towns  utterly  independent  of  the 
sales.  The  valuations  for  each  district  as  computed  from  the  sales  data  and 
as  fixed  by  the  inspectors  thus  appointed  are  set  down  in  the  table  below : 


Sales 

District  data 

Cassian  T $448,838 

Crescent  T 266,308 

Enterprise  T 626,314 

Hazelhurst  T 406,016 

Little  Rice  T 279,032 

Lynne  T 468,972 

Minocqua  T 1,315,280 

Monico  T 308,600 

Newbold  T 308,838 

Pelican  T 898,164 

PiehlT 231,374 

Pine  Lake  T 224,286 

Schoepke  T 342,146 

Sugar  Camp  T 451,006 

Three  Lakes  T 906,926 

Woodboro  T 215,546 

Woodruff  T 202,754 

Rhinelander  C 3,364,220 

Totals $11,264,620 


Per  cent  to 
total 

By  tax  com- 
mission's 
inspectors 

Per  cent  to 
total 

3-98 

$451,570 

3.82 

2.36 

277,450 

2-34 

5.56 

498,750 

4-23 

3.60 

350,250 

2.94 

2.48 

260,970 

2.20 

4.16 

555,010 

4.67 

11.70 

1,785,850 

15-03 

2.74 

445,030 

3-74 

2.74 

325,360 

2.74 

7.96 

677,050 

5-70 

2.05 

256,990 

2.16 

1.99 

273,290 

2.30 

3-04 

381,320 

3.21 

4.01 

510,600 

4.29 

8.05 

906,300 

7-63 

1.91 

174,490 

1-47 

1.80 

201,530 

1.69 

29.87 

3,543,770 

29.84 

100.00 

$11,875,580 

100.00 

The  first  remarkable  feature  of  the  above  table  is  that  the  values  fixed  on 
re-examination  were  approximately  $600,000  in  excess  of  the  sales  computa- 
tion of  the  county  total.  In  other  words,  the  difference  between  the  two 
figures  was  less  than  55  per  cent.  Very  few  persons  would  be  willing  to 
guarantee  that  two  experts  valuing  a  single  piece  of  property  or  a  group  of 
twenty,  forty  or  one  hundred  properties  would  agree  within  5  per  cent. 
The  result  in  its  total  was  a  remarkable  confirmation  of  the  general  accuracy 
of  the  sales  data. 

Taking  up  individual  districts,  the  towns  of  Cassian,  Crescent,  Little 
Rice,  Newbold,  Piehl,  Pme  Lake,  Schoepke,  Three  Lakes  and  Woodruff, 
and  the  city  of  Rhinelander  can  practically  be  passed  without  question,  the 


TAX  COMMISSION  OF  WISCONSIN  285 

dififerences  being  relatively  slight.  The  difference  in  all  other  cases  grows 
directly  out  of  the  fact  that  the  proportions  of  property  assessed  to  property 
sold  in  the  given  districts  of  each  of  the  several  classes  were  vastly  different. 
Take  Minocqua  as  an  illustration.  Timber  land  was  assessed  in  Minocqua 
at  68  per  cent,  wild  and  cut  over  lands  at  124  per  cent,  improved  land  or 
farms  at  20  per  cent,  lake  frontage  at  20  per  cent,  village  plat  at  64  per  cent, 
and  timber  land  of  the  most  influential  individual  in  the  town  at  16  per  cent. 
The  same  individual  owned  a  logging  railroad  taxable  as  personal  property, 
worth  $70,000,  which  was  not  assessed  at  all. 

Under  these  circumstances  it  is  remarkable  that  we  got  within  $470,000 
of  the  true  value  in  the  town  of  Minocqua.  We  had  a  disproportionate 
amount  of  property  sold  in  the  village  of  Minocqua.  Had  we  separated  our 
sales  into  the  village  plat  and  the  outside  property  and  made  two  computa- 
tions instead  of  one  for  the  town  as  we  have  done  for  the  town  of  Eagle 
River,  Vilas  coimty,  where  similar  conditions  prevail,  we  would  have  arrived 
at  a  practically  correct  sales  valuation  for  the  town  of  Minocqua.  In  other 
words,  the  sales  method  carries  within  itself  the  main  possibilities  of  cor- 
rection of  extreme  cases  such  as  existed  in  this  town. 

The  conditions  presented  here  are  the  most  extreme  to  be  found  in  Wis- 
consin and  are  undoubtedly  far  more  extreme  than  could  be  found  in  any 
portion  of  Ohio.  Northern  Wisconsin  is  just  emerging  from  the  lumber- 
man's stage  into  a  stage  of  sparse  settlement.  The  settlers  are  very  poor 
and  some  under  the  conditions  not  uncommon  in  pioneer  communities  are 
not  wholly  regardful  for  the  property  rights  of  outsiders.  They  sometimes 
regard  it  as  legitimate  to  run  the  tax  rates  up  unnecessarily  high  so  long  as 
the  money  is  expended  within  their  own  community.  As  a  result  two  con- 
ditions are  likely  to  be  found  in  a  northern  town  —  (i)  the  gross  under- 
assessment relatively  of  the  improved  property  of  the  resident,  and  (2) 
extravagance  and  sometimes  corrupt  mismanagement  on  the  part  of  those 
controlling  the  ofl&cial  machinery  of  the  town.  The  opposite  condition  is 
not  infrequent  where  lumber  companies  still  operate  their  mills  and  control 
the  politics  of  the  community.  Under  these  circumstances  it  would  be  ex- 
pected that  all  sales  values,  taking  the  chances  they  do  of  being  representa- 
tive, would  err  widely  in  individual  cases.  The  fact  that  the  greatest  error 
in  this  investigation  was  approximately  25  per  cent  I  regard  as  an  extreme 
confirmation  of  the  sales  values  rather  than  as  in  any  way  a  reflection  upon 
them.  A  more  representative  situation  is  that  disclosed  by  reassessments 
ordered  by  the  commission  in  districts  where  assessments  have  not  been 
made  conformably  to  law.  Such  reassessments  were  ordered  in  1913  for 
which  comparable  figures  are  available  at  the  present  time.  (See  table  on 
the  next  page.) 

In  the  table  the  original  local  assessment,  the  reassessment  and  the 
sales  valuation  of  real  estate  are  stated  in  each  case.  The  valuations  in 
Chippewa  Falls,  Black  Earth,  Cross  Plains,  Ripon,  Peshtigo,  North  Mil- 
waukee, Freedom  and  Dupont  are  remarkably  close.  The  others  fluctuate 
more  widely.  Internal  evidence  shows  us  that  the  reassessments  in  Ackley, 
Main,  etc.,  are  open  to  serious  question.  Nevertheless  the  total  of  all 
reassessments  and  sales  valuations  are  less  than  i  per  cent  apart  (actual 


286  THE  STATE  TAX  COMMISSION 


Results  of  Certain  Reassessments  in  Wisconsin 

Original  1913  State  assess- 

assessment  Reassessment         ment.    Value  of 

Assessment  districts  real  estate  real  estate        real  estate  in  district 

Chippewa  Falls,  Chippewa  Co.  .  $2,830,230  $4,620,157  $4,755,640 

Black  Earth,  Dane  Co 406,596  645,705  614,102 

Cross  Plains,  Dane  Co 1,143,965  1,729,430  1,759,920 

Ripen,  Fond  du  Lac  Co 2,073,440  3,203,570  2,153,540 

Millville,  Grant  Co 121,402  264,180  195,293 

Ackley,  Langlade  Co 804,885  959,900  1,131,828 

Maine,  Marathon  Co 452,400  1,090,972  1,290,064 

Mosinee,  Marathon  Co 181,570  569,250  475,990 

Peshtigo,  Marinette  Co 367,045  490,940  491,182 

Greenfield,  Milwaukee  Co 7>9i7,035  9,154,205  8,581,680 

N.  Milwaukee,  Milwaukee  Co.  .  .  1,572,390  2,351,185  2,135,220 

Apple  River,  Polk  Co 221,235  339, 173  426,514 

Somerset,  St.  Croix  Co 529,255  1,028,710  1,194,010 

Spooner,  Washburn  Co 429,258  538,256  628,720 

Dupont,  Waupaca  Co 560,120  991,150  972,046 

Totals $20,850,703        $30,011,899        $29,821,289 

percentage  100.64  reassessment  over  sales  value),  again  a  remarkable  con- 
firmation of  the  sales  valuations. 

The  state  assessment  of  19 13  had  been  made  on  the  basis  of 
sales  data  which  had  been  collected  from  these  various  districts. 
The  reassessments  show  that  in  most  cases  the  results  of  the  sales 
ratios  were  very  close  to  the  actual  value. 


APPENDIX  B 

From  a  Personal  Letter  from  Professor  T.  S.  Adams,  Member  of 
the  Wisconsin  Tax  Commission.    February  24,  1914 

The  essentials  of  the  Wisconsin  method  of  valuation  are  thoroughly 
understood  by  the  representatives  of  the  railroads  subject  to  the  Wisconsin 
tax.  On  the  basis  of  reports  submitted  by  the  companies  in  question  and 
after  revision,  tentative  valuations  are  prepared  by  capitalizing  gross  and 
net  earnings  for  five-year  periods  and  one-year  periods.  This  presents  four 
distinct  valuations.  The  stock  and  bonds  are  then  valued  in  accordance 
with  market  quotations  after  elimination  of  non-operating  properties  and 
the  valuation  is  distributed  or  apportioned  according  to  track  mileage, 
gross  earnings  and  net  earnings.  Three  additional  valuations  are  thus  pre- 
pared. In  addition  similar  valuations  are  determined  in  accordance  with  a 
method  devised  by  Mr.  Haugen,  which  consists  in  taking  the  bonds  at  market 
value,  subtracting  the  interest  paid  on  such  bonds  from  the  net  earnings 


TAX  COMMISSION  OF  WISCONSIN  287 

and  capitalizing  the  remainder  in  the  fashion  described  below.  The  aggre- 
gate of  the  bond  values  and  the  capitalized  earnings  thus  secured  is  then  dis- 
tributed to  Wisconsin  on  the  basis  of  the  proportionate  track  mileage,  gross 
and  net  earnings,  respectively.  Moreover  we  have  before  us  a  physical 
valuation  representing  the  cost  of  reduplication  in  present  condition  and 
frequently  the  commercial  valuation  prepared  by  T.  A.  Polleys.  Averages 
of  these  valuations  are  then  computed,  one  a  simple  average,  the  other  a 
weighted  average  in  which  the  capitalized  gross  earnings  for  five  years  are 
given  a  weight  of  10,  the  capitalized  gross  earnings  for  one  year  a  weight  of 
5,  the  capitalized  net  earnings  for  five  years  a  weight  of  35,  the  capitalized 
net  earnings  for  one  year  a  weight  of  10,  the  average  of  the  Haugen  valua- 
tions a  weight  of  30,  and  the  physical  valuation  a  weight  of  10. 

The  rates  at  which  gross  and  net  earnings  are  capitalized  are  with  respect 
to  steam  railroads  determined  in  the  following  manner.  The  roads  are  first 
classified  in  homogeneous  groups  and  it  is  assumed  that  the  aggregate  valua- 
tion placed  on  such  roads  in  the  previous  year  is  correct.  This  valuation  is 
then  divided  into  the  gross  and  net  earnings,  as  the  case  may  be,  the  result 
being  the  rate  at  whicjh  their  earnings  were  capitalized  in  the  preceding  year 
to  reach  the  assessments  actually  imposed.  The  rates  of  capitalization  were 
in  the  beginning  determined  with  great  care. 

The  weighted  and  simple  averages  above  mentioned  furnish  a  mechanical 
starting  point.  There  is  a  presumption  in  favor  of  the  valuations  so  secured, 
which  can  only  be  removed  by  positive  evidence.  We  have,  as  it  were,  a 
mechanical  datum  unaffected  by  personal  idiosyncrasy,  from  which  to  start. 
Just  how  these  results  are  modified  cannot  be  described,  not  because  the 
process  is  in  any  sense  secret,  but  because  the  considerations  are  too  numer- 
ous and  frequently  too  subtle  to  be  depicted  in  an  explicit  way.  Offers  of 
sale;  palpable  evidence  of  mistaken  policy  in  the  construction  of  roads; 
consolidations  or  financial  factors  affecting  the  future  of  the  properties  in 
question  —  a  thousand  and  one  considerations  such  as  the  ordinary  pur- 
chaser or  buyer  would  take  into  account  are  considered.  This  is  the  ele- 
ment which  in  my  opinion  makes  the  ad  valorem  result  preferable  to  the 
gross  receipts  result.  Any  set  of  reasonably  honest  and  industrious  men  can 
modify  any  mechanically  made  computation  in  the  direction  of  greater 
justice.  It  is  very  necessary  that  human  judgment  shall  not  be  wholly 
unguided.  A  mechanical  method  is  needed  to  keep  the  human  mind  in  line. 
But  starting  with  such  a  method  human  judgment  or  common  sense  can 
always  improve  upon  averages.  Contrast  any  set  of  gross  receipts  taxes 
with  the  corresponding  ad  valorem  taxes  that  would  be  made  by  any  set 
of  men  and  the  results  in  my  opinion  will  usually  be  so  startling  as  to  carry 
condemnation  of  the  gross  receipts  method.  The  discretionary  element 
involved  in  the  ad  valorem  tax  is  to  my  mind  markedly  less  disadvantageous 
than  the  necessary  injustice  resulting  from  the  mechanical  rigidity  of  the 
gross  receipts  method. 

In  the  assessment  of  street  railway  properties  and  the  smaller  public 
utilities  in  which  market  quotations  offer  no  guide  as  to  the  proper  rate  of 
capitalization,  we  have  used  in  recent  years  the  following  method.  A  group 
of  the  largest  properties,  whose  securities  are  bought  and  sold,  are  treated 


288  THE  STATE  TAX  COMMISSION 

as  the  steam  roads  above,  and  their  aggregate  valuation  divided  into  their 
gross  and  net  earnings  to  ascertain  the  rate  of  capitaUzation  actually  em- 
ployed in  the  preceding  year  to  determine  their  valuation.  The  same  process 
is  then  applied  to  a  group  containing  the  smallest  properties  in  the  state. 
This  furnishes  the  extreme  limits  of  the  capitalization  rates,  and  between 
the  two  the  rate  is  increased  regularly  corresponding  to  the  increase  in  the 
size  of  the  properties.  This  is  of  course  only  a  rough  method  but  compare 
it  with  the  variation  of  rates  in  gross  receipts  taxes.  With  respect  to  these 
properties  a  main  classification  is  also  maintained,  dividing  those  whose 
values  are  plainly  above  the  physical  value  and  those  whose  values  are 
plainly  below  the  cost  of  reduplication  in  present  condition. 

Corporations  subject  to  the  Wisconsin  ad  valorem  tax  laws  are  fully  in- 
formed as  to  the  general  processes  employed  by  the  commission  and  en- 
couraged to  present  any  facts  bearing  upon  the  valuation  process.  There  is 
in  this  process  no  more  uncertainty  and  no  more  discretion;  no  more  exer- 
cise of  human  judgment  than  is  employed  every  day  in  the  valuation  of  the 
great  mass  of  real  estate  and  other  similar  property  placed  upon  local  assess- 
ment rolls.  The  ad  valorem  system  of  corporation  taxation  has  all  the  de- 
fects and  all  the  advantages  which  characterize  the  system  of  direct  ad 
valorem  taxes  in  general,  for  which  the  American  people  plainly  express  so 
deep  a  preference. 


CHAPTER  IX 

THE  BOARD  OF  STATE  TAX  COMMISSIONERS  OF 
MICHIGAN 

The  tax  situation  in  Michigan  during  the  closing  decades  of  the 
nineteenth  century  was  the  counterpart  of  that  which  prevailed 
at  the  same  time  in  many  other  states.  Property  was  under- 
assessed; there  was  but  a  feeble  attempt  at  equalization;  and  the 
grossest  inequalities  had  developed  among  taxing  districts, 
individual  owners,  and  classes  of  property.  The  assessed  valua- 
tion was  rising  but  slowly  while  the  inadequate  state  equahzation 
effected  a  very  imperfect  distribution  of  the  tax  burden  and 
steadily  aroused  a  greater  dissatisfaction  with  the  existing  tax 
system.  The  situation  was  aggravated  by  the  deficiencies  of 
corporate  taxation,  especially  of  the  pubHc  service  corporations 
which  were  generally  believed  to  be  paying  less  than  their  fair 
share  of  taxes.  From  many  points  of  view  there  was  good  cause 
for  the  strong  demand  for  tax  reform  which  set  in  during  the 
nineties. 

Various  governors  had  urged  reform  measures  during  the 
preceding  thirty-odd  years/  but  it  was  reserved  for  Governor 
Pingree,  who  had  made  "  equal  taxation  "  the  keynote  of  his  cam- 
paign, to  initiate  the  most  extensive  and  important  changes  in  the 
tax  system. 2  In  a  series  of  urgent  messages  to  the  legislature  he 
stated  the  case  for  reform  vigorously  and  effectively,  outlining 
two  principal  plans  of  remedial  legislation.^  One  of  these  looked 
to  a  change  in  the  methods  of  taxing  public  service  corporations 

^  Inequalities  in  the  tax  system  were  emphasized  in  the  messages  of  Governors 
Bagley,  1877,  Croswell,  1877,  Luce,  1887  and  1891,  Winans,  1891,  Rich,  1896.  Cf. 
Hedrick,  History  of  Railroad  Taxation  in  Michigan,  p.  35. 

2  This  policy  is  referred  to  rather  slightingly  by  Snider  in  his  discussion  of  gross 
receipts  taxation  in  Wisconsin,  on  the  ground  that  Pingree  was  a  firm  believer  in 
the  general  property  tax.  However  conservative  his  view  on  this  point,  the  signifi- 
cance of  his  recommendations  for  central  supervision  must  not  be  overlooked.  Cf. 
Snider,  op.  cit.,  p.  102. 

'  Cf.  Special  Message  of  Governor  Pingree,  May  6,  1897. 

280 


290  THE  STATE  TAX  COMMISSION 

and  the  other  to  the  creation  of  a  department  of  taxes  and  assess- 
ments which  was  to  exercise  general  supervision  over  the  whole 
tax  system.  After  three  years  of  continued  agitation,  during 
which  at  least  two  special  sessions  were  devoted  to  the  discus- 
sion of  tax  problems,  measures  embodying  these  policies  were 
adopted  by  the  legislature.  The  bill  for  taxing  corporations, 
known  as  the  "  Atkinson  law,"  was  nullified  by  the  courts,  a  fate 
which  necessitated  a  constitutional  amendment.^  Under  this 
amendment,  adopted  in  1902,2  have  been  effected  the  changes  in 
the  taxation  of  pubHc  service  corporations  which  will  later  be 
discussed. 

The  most  significant  feature  of  the  second  part  of  Governor 
Pingree's  program  was  the  creation  of  a  board  of  state  tax  com- 
missioners, consisting  of  three  members  who  were  to  be  chosen 
by  the  governor  with  the  consent  of  the  Senate  for  terms  of  two, 
four,  and  six  years  respectively.  The  full  term  thereafter  was  to 
be  six  years  and  the  salary  was  to  be  $2500.  This  board  was  given 
considerable  powers  of  supervision  over  the  whole  tax  system. 
In  addition  it  was  instructed  to  investigate  the  conditions  of  cor- 
porate taxation,  especially  with  a  view  to  appraising  the  proper- 
ties of  those  corporations  which  were  paying  specific  taxes.  It 
was  also  to  ascertain  the  rate  of  ad  valorem  taxation  which  would 
yield  an  amount  equal  to  the  specific  taxes  paid. 

In  the  early  years  of  its  existence  the  board  performed  its  work 
with  vigor  and  as  far  as  valuations  were  concerned  the  results 
were,  on  the  whole,  satisfactory.^  In  investigating  the  system  of 
corporate  taxation  the  famous  "  Cooley- Adams "  physical 
appraisal  of  railroad  property  was  made,  and  as  the  result  of  its 
findings  the  gross  receipts  method  was  abandoned  for  the  ad 
valorem  method  of  taxing  certain  classes  of  public  service  cor- 
porations.* The  assessment  was  to  be  made  by  the  board  of  tax 

1  Public  Acts  of  Michigan,  1899,  No.  19.  .  Cf.  Hedrick,  op.  cit.,  p.  37.  Also, 
Pingree  v.  Attorney-General,  120  Mich.  95. 

2  Constitiuion  of  Michigan,  Art  XIV,  §  10. 

'  The  Ontario  Railroad  Commission  of  1905  spoke  with  especial  approval  of  the 
first  Michigan  Board  of  State  Tax  Commissioners.  Cf .  Report  of  the  Commission  on 
Railway  Taxation  of  Ontario,  1906,  p.  46. 

*  Public  Acts  of  Michigan,  1901,  No.  173. 


TAX  COMMISSIONERS  OF  MICHIGAN  29 1 

commissioners  acting  as  a  state  board  of  assessors.  Partly  by 
reason  of  the  increased  labor  involved  in  this  extension  of  its 
functions  and  partly  because  of  the  appearance,  even  at  this  early 
date,  of  the  partisan  strife  which  was  later  to  be  so  detrimental 
to  the  board's  work,  the  number  of  members  was  increased  to  five. 

The  popular  approval  which  greeted  the  board's  work  in  the 
beginning  was  diminished  by  its  aggressive  policy  and  strong 
feeling  developed  against  it.  So  powerful  had  this  opposition 
become  by  1905  that  the  law  of  1899  was  emasculated  and  most 
of  the  really  effective  powers  of  supervision  and  control  were 
eliminated,  while  the  membership  was  reduced  to  three  and  the 
appropriations  were  materially  cut  down.^  Hampered  both  by 
this  policy  of  financial  restriction  and  by  the  narrow  sphere  of 
authority  which  remained  after  the  legislation  of  1905,  the  board 
steadily  lost  its  grip  on  tax  conditions  in  the  state.  In  1909  came 
the  beginning  of  a  more  liberal  policy.  The  assessment  of  tele- 
phone and  telegraph  companies  was  added  to  the  work  of  the 
state  board  of  assessors  and  the  governor  was  made  an  ex  officio 
member  of  this  body.^  In  191 1  the  powers  of  supervision  which 
had  been  so  ruthlessly  cut  into  in  1905  were  restored  and  even 
broadened,  so  that  today  the  Michigan  tax  commission  is  once 
more  legally  entitled  to  resume  the  position  of  leadership  with 
which  it  was  originally  endowed.^ 

The  question  naturally  arises,  why  has  the  board  had  such  a 
checkered  career  ?  The  first  factor  to  be  mentioned  in  an  exceed- 
ingly complicated  situation  is  that  of  local  sentiment.  At  the 
outset  the  board  of  state  tax  commissioners  was  a  very  popular 
institution,  but  its  good  standing  lasted  only  until  the  realization 
had  become  statewide  that  all  were  expected  to  pay  taxes  on  the 
same  basis.  The  policy  of  leveling  up  assessments  toward  full 
value,  which  was  vigorously  applied  in  the  early  reviews  con- 
ducted by  the  board,  naturally  excited  opposition  among  the 
tax  dodgers,  a  feeling  which  was  fostered  by  the  local  assessing 
officers  who  were  being  overridden  in  such  a  roughshod  manner. 

'  Public  Ads  of  Michigan,  1905,  No.  281. 

*  Ibid.,  1909,  No.  49.    The  provision  of  an  ex  officio  member  is  not  regarded  as 
one  of  the  improvements. 
'  Ibid.,  1911,  No.  17. 


292  THE  STATE  TAX  COMMISSION 

The  state  supervisors'  association,^  an  organization  of  the  local 
assessors,  became  a  powerful  enemy  of  the  board  and  its  work, 
and  by  1905  it  had  become  strong  enough  pohtically  to  contribute 
materially  to  the  change. ^ 

Sharp  opposition  to  the  board  developed  from  another  quarter, 
the  railroads  and  other  corporations  which  were  being  assessed 
by  it.  The  whole  poHtical  strength  of  these  interests  was  centered 
upon  its  destruction;  but  they  gained  httle  relief  in  the  changes 
of  1905,  a  fact  which  has  since  transformed  the  railroads  into 
alHes  of  the  tax  commission  in  the  endeavor  to  elevate  the  level 
of  general  property  assessments. ^  In  one  of  the  early  railroad 
cases  against  the  tax  commission  two  members  made  aflSdavit 
regarding  the  ratio  of  assessed  to  true  value  on  the  basis  of  which 
the  average  rate  applied  to  the  railroads  was  computed,  and  the 
affidavits  were  used  by  the  complainants  in  their  case.^  PubHc 
suspicion  was  directed  against  these  officials  who  were  thus  felt 
to  be  betrayers  of  the  people's  trust,  though  the  material  of  the 
affidavits  related  simply  to  the  board's  conclusion  that,  in  gen- 

^  The  local  assessing  officer  is  called  the  supervisor. 

*  The  following  set  of  resolutions  illustrates  the  attitude  of  local  officials  toward 
the  board.    They  are  dated  October,  1903. 

"Whereas:  The  highest  legal  authority  in  the  state,  the  attorney-general,  is 
opposing  the  state  tax  commission's  methods,  in  a  suit  against  the  railroads,  he 
takes  the  position  that  the  commissioners  have  not  only  sympathized  with  the  rail- 
roads, but  have  gone  beyond  their  official  duties  to  help  the  railroads  in  their  efforts 
to  avoid  their  full  share  of  taxes. 

"  Whereas:  The  proceedings  of  the  commission  in  Wayne  county  indicate  very 
plainly  that  the  attorney-general  has  good  ground  for  his  contention,  as  the  com- 
missioners appear  to  be  raising  assessments  beyond  cash  value  with  the  purpose  of 
lowering  the  rate  of  taxation  for  the  railroads. 

"  Whereas:  Such  violation  of  their  oath  is  a  menace  to  the  general  and  individual 
taxpayer  of  Wayne  county  and  the  State  of  Michigan  and  is  a  contradiction  of  the 
purposes  for  which  the  commission  was  created,  and  Whereas,  It  has  become  a  duty 
and  a  necessity  for  the  board  of  supervisors  of  Wayne  county  and  local  assessing 
officers  throughout  the  state  to  take  some  action  for  the  protection  of  their  con- 
stituents, therefore  be  it  resolved 

"  Resolved:  That  the  county  clerk  be,  and  is  hereby  instructed  to  transmit 
copies  of  this  resolution  to  the  boards  of  supervisors  of  all  counties  in  Michigan,  to 
the  end  that  a  permanent  and  effective  organization  of  assessing  officers  may  be 
formed  whose  obligation  will  be  to  secure  justice  for  the  general  taxpayer." 

'  Cf.  below,  pp.  312,  313. 

*  Michigan  Central  v.  Atidilor-General.     Transcript  of  evidence,  pp.  21  ff. 


TAX  COMMISSIONERS  OF  MICHIGAN  293 

eral,  property  was  assessed  at  about  82.7  per  cent  of  actual  cash 
value. 

A  third  factor  which  has  affected  the  board's  destiny  has  been 
political  manipulation.  Practically  all  of  the  earlier  appointees 
were  selected  on  purely  political  grounds,  and  while  some  of  the 
incumbents  of  the  office  have  wrought  zealously  for  the  state  in 
the  discharge  of  their  duties,  the  spoils  system  has  been  too  prom- 
inent in  the  process  of  selection.  It  is  especially  unfortunate  that 
Michigan  governors  have  persisted  in  regarding  the  office  in  this 
hght.  The  controversy  between  Governor  Osborn  and  Commis- 
sioner Robert  M.  Shields  in  191 2  exposed  the  strong  political  feel- 
ing that  had  grown  up  between  the  two  men.^  No  more  certain 
way  of  destroying  absolutely  the  efficiency  and  independence  of 
the  board  of  state  tax  commissioners  can  possibly  be  devised  than 
that  of  political  manipulation.  The  whole  department  should  be 
placed  at  once  upon  the  basis  of  strict  efficiency  and  should  be 
judged  from  that  basis.  This  ideal  is  being  applied  by  the  present 
members  of  the  board  in  dealing  with  their  own  employees.  The 
personnel  of  the  commissioners  was  completely  changed  in  191 1- 
12,  and  an  earnest  fight  has  since  been  made  for  the  elimination 
of  all  politics  from  the  department.^  The  argument  for  making 
the  governor  a  member  of  the  state  board  of  assessors  was  that 
the  executive  head  of  the  state  might  thus  come  more  directly  in 
contact  with  the  assessment  process;  but  it  developed  in  the 
Osborn-Shields  controversy  that  the  governor  had  not  attended 
the  sessions  of  the  board  of  assessors  and  had  refused  to  sign  the 
report  until  assured  by  the  attorney-general  that  the  state  could 
not  collect  the  taxes  from  the  public  utilities  until  his  signature 
had  been  affixed.^ 

As  would  be  expected  from  the  above  review  of  its  shifting 
fortunes  the  functions  of  the  Michigan  board  of  tax  commissioners 
have  varied  somewhat  in  importance.  Originally  supervision  of 
the  local  officials  was  the  function  actually  possessed  and  exer- 
cised, together  with  the  duty  of  collecting  information  on  certain 

*  Files  of  Detroit  Journal,  191 2,  passim,  especially  facsimile  of  letter  from 
Governor  Osborn's  campaign  manager  to  Mr.  Shields,  Jan.  25. 

2  Board  of  State  Tax  Commissioners,  Report,  1912,  p.  6;  ibid.,  1914,  pp.  ii,  12. 
'  Detroit  Free  Press,  June  3,  191 2. 


294  THE  STATE  TAX  COMMISSION 

other  subjects,  chief  of  which  were  the  valuation  of  the  corpora- 
tions paying  specific  taxes  and  preparation  of  the  data  to  be  used 
in  the  state  equahzation.  With  the  transition  to  the  ad  valorem 
system  in  1901  corporate  valuation  became  an  important  and 
responsible  task.  The  state  equahzation  has  continued  to  be  the 
task  of  a  separate  state  board  which  has  had  before  it  certain 
materials  collected  and  prepared  by  the  board  of  tax  commis- 
sioners. The  only  relation  of  the  latter  to  the  work  of  equalization 
has  been  that  of  preparing  materials. 

The  State  Equalization 

Previous  to  191 1  the  state  board  of  equahzation  was  composed 
of  the  elective  state  ofiicers  acting  ex  officio.  In  this  year  the 
lieutenant-governor  was  replaced  by  the  chairman  of  the  board 
of  tax  commissioners.  The  representation  upon  the  equahzing 
board  of  the  state  department  best  informed  concerning  valua- 
tions and  assessments  is  so  logical  that  such  delay  in  making  the 
substitution  for  some  elective  officer  is  incomprehensible.  The 
state  equalization  of  real  and  personal  property  assessments 
occurs  only  in  connection  with  the  appraisal  of  real  estate  which 
had  been  conducted  quinquennially  previous  to  191 1,  but  which 
was  thereafter  to  be  performed  in  every  third  and  fifth  year,  e.  g., 
1914  and  1916.  There  has  been  no  state  equahzation  of  personal 
property  in  the  intermediate  years. 

The  method  used  by  the  board  of  tax  commissioners  previous  to 
19 14  in  preparing  the  materials  for  the  state  equalization  was  the 
collection  of  information  relative  to  sales  of  real  estate.  The  equip- 
ment of  the  Michigan  board  for  statistical  purposes  has  not  been 
as  complete  as  that  of  the  Wisconsin  commission,  and  the  sales 
material  was  not  handled  in  as  scientific  a  manner  as  by  that  com- 
mission; but  fairly  effective  precautions  were  observed  against 
the  inclusion  of  improper  data  and  the  results  were  by  far  the 
most  valuable  guide  to  the  conditions  of  real  estate  assessment 
that  existed  in  the  state. ^  The  sales  data  were  supplemented  by 

1  The  methods  used  in  preparing  the  ratios  have  been  described  in  various  places. 
Cf.  State  Board  of  Equalization,  Report,  1901;  Board  of  State  Tax  Commissioners, 
Report,  1902,  pp.  35-49.    It  has  been  the  practice  to  exclude  sheriffs'  sales  and  other 


TAX  COMMISSIONERS  OF  MICHIGAN  295 

appraisals  of  sample  pieces  of  property  which  had  not  been 
recently  transferred.  The  results  of  the  sampling  process  were 
usually  checked  by  the  judgment  of  local  men  conversant  with 
real  estate  values  and  then  compared  with  the  assessed  valua- 
tion. From  these  ''  pickups,"  as  they  were  called,  and  the  sales 
data  covering  a  three-year  period,  a  ratio  of  assessed  to  true  value 
was  computed  for  each  county.^  The  "  pickups  "  were  given  less 
weight  in  the  calculation  of  the  ratio  than  were  the  sales  data, 
and  while  the  testimony  of  a  former  commissioner  in  the  railroad 
case  already  referred  to  indicates  that  different  results  were  ob- 
tained from  the  two  sets  of  figures  he  remarked  that  there  was 
"  not  difference  enough  to  talk  about."  ^  One  of  the  field  men 
testified  in  the  same  case  that  at  first  there  had  been  no  special 
effort  made  to  get  at  least  one  parcel  from  each  section,  but  that 
this  was  later  uniformly  done.  It  should  be  said  that  the  "  pick- 
ups "  were  used  only  in  those  districts  in  which  the  volume  of 
sales  data  was  insufficient  for  the  construction  of  a  trustworthy 
average.  The  sales  for  the  three  years  preceding  191 1  aggregated 
over  200,000  transactions. 

The  first  seven  months  of  1914  were  spent  by  the  new  members 
of  the  tax  commission  in  preparing  the  report  for  the  state  board 
of  equahzation,  and  their  first  move  was  to  discard  the  sales 
method.^  This  was  done  partly  on  the  ground  that  the  vitiating 
elements,  such  as  nominal  considerations,  unusual  motives  for 
purchase  or  sale,  sales  to  non-residents,  could  not  be  excluded 
with  certainty.  These  objections  really  amounted  to  a  confes- 
sion of  the  inadequacy  of  the  Michigan  statistical  organization, 
for  the  Wisconsin  tax  commission  has  unquestionably  succeeded 
in  meeting  such  difficulties  fairly  well.    Another  objection  has 

forced  transactions;  sales  to  relatives;  and  all  dollar  sales  in  which  the  true  con- 
sideration could  not  be  obtained.  In  addition  the  records  were  scrutinized  to  dis- 
cover changes  in  improvements  and  to  note  the  correspondence  of  property  sold 
and  assessed.  Cf.  Board  of  State  Tax  Cormnissioners,  Report,  1900,  pp.  61,  62,  for 
further  description.    The  system  has  been  somewhat  improved  since  that  time. 

^  Michigan  Central  v.  Auditor-General.  Transcript  of  evidence,  pp.  112  ff,  re- 
marks of  Ex-Commissioner  Freeman.  Cf.  also  State  Board  of  Equalization, 
Report,  1901. 

'  Michigan  Central  v.  Auditor-General.     Transcript  of  evidence,  p.  216. 

'  Board  of  State  Tax  Commissioners,  Report,  1914,  pp.  6-8. 


296  THE  STATE  TAX  COMMISSION 

greater  weight.  In  191 1  the  Michigan  board  began  a  thorough 
review  of  assessments,  county  by  county,  and  the  continuance  of 
the  sales  method  meant  the  use  of  different  methods  for  different 
counties  since  the  board  intended  to  use  its  own  results  in  the 
reassessed  counties.  For  the  sake  of  uniformity,  therefore,  the 
whole  state  was  "  sampled  "  and  an  effort  made  to  construct  for 
the  unreviewed  counties  an  estimate  of  true  value  that  would 
approximately  coincide  with  the  results  in  those  which  had  been 
reviewed.  In  the  latter  group,  comprising  eighteen  counties,  the 
local  figures  for  1914  were  accepted  with  minor  changes.^  For 
the  other  counties  the  quantity  of  each  class  of  property  was  com- 
puted from  the  local  assessment  roll  and  samples  were  taken  in 
each  district  for  real  estate,  tangible  personalty,  mercantile  and 
industrial  properties.  PubKc  utilities  and  industrial  establish- 
ments were  either  separately  assessed  or  sampled.  The  true  value 
of  securities,  credits,  and  bank  stocks  was  estimated.  The  ratio  of 
assessed  to  true  value  for  the  property  sampled  was  applied  to  the 
whole  quantity  of  property  in  order  to  arrive  at  the  estimated 
aggregate  value.  Special  agents  of  the  commission  examined  in  all 
68,072  parcels  of  real  estate,  with  a  valuation  of  $161,637,362,  or 
17.68  per  cent  of  all  assessed  real  estate  in  the  districts  covered. 
They  also  appraised  9798  lots  of  personal  property,  representing 
34.44  per  cent  of  all  personalty  in  the  districts  investigated. 

The  weakness  of  this  plan,  it  is  evident,  is  the  assumption  that 
the  local  assessors  had  listed  all  of  the  property  of  each  class  in 
the  district.  This  assumption  was  doubtless  sufficiently  correct 
in  the  case  of  real  estate  but  it  was  much  more  questionable  in  the 
case  of  the  various  forms  of  personal  property.  Some  of  the  cau- 
tions that  are  required  in  the  use  of  the  sales  method  should  be 
observed  here  also,  such  as  ascertaining  exact  correspondence  of 
the  parcel  assessed  and  sampled  in  each  case,  and  the  possible 
inclusion  or  exclusion  of  improvements  in  one  appraisal  or  the 
other.    Care  should  be  taken  also  that  the  properties  selected 

1  The  law  forbids  the  local  assessor  to  reduce  his  figures  below  those  established 
by  the  commission  for  a  period  of  three  years.  The  local  assessment  of  1914  was, 
therefore,  at  least  as  high  as  the  commission's  findings  in  previous  review  proceed- 
ings.    Cf.  below,  pp.  325,  326. 


TAX  COMMISSIONERS  OF  MICHIGAN  297 

represent  fairly  all  grades  of  property  of  the  class  in  the  district. 
These  and  other  difficulties  suggest  that  a  satisfactory  equaliza- 
tion is  as  difficult  by  the  sampling  process  as  by  the  sales  method, 
but  under  the  circumstances  the  board  probably  acted  wisely  in 
changing  its  method  of  procedure. 

The  collection  of  data  for  the  equalization  of  personal  property 
in  1914  was  the  most  complete  that  had  ever  been  undertaken  by 
the  Michigan  board.  The  materials  accumulated  in  the  various 
reappraisal  proceedings  afforded  a  fairly  satisfactory  basis  for 
equalizing  certain  classes  of  personal  property  such  as  mercantile 
stocks,  Hve  stock  and  some  other  groups  of  tangible  property. 
Bank  stocks  were  likewise  accessible,  but  the  attempt  to  ascer- 
tain the  true  amount  of  moneys  and  credits  was  pure  guess- 
work. With  respect  to  most  classes  of  property,  however,  the 
commission's  report  to  the  state  board  of  equalization  in  19 14 
undoubtedly  represented  a  closer  approximation  to  the  true 
quantity  and  value,  and  made  possible  a  better  state  equaliza- 
tion, than  had  ever  been  made  before.  This  possibility  was 
realized  for  the  state  board  of  equalization  complied  more  closely 
with  the  recommendations  than  had  been  its  previous  custom. 
Indeed,  before  the  addition  of  the  chairman  of  the  tax  commis- 
sion to  the  state  board  of  equalization  in  191 1,  that  body  had 
been  unaccustomed  to  make  any  important  use  of  the  data  col- 
lected by  its  expert  collaborators.  Rather,  the  sort  of  material 
to  which  the  board  of  equalization  had  apparently  given  greatest 
weight  is  that  which  has  filled  the  pages  of  its  periodical  reports, 
viz.,  the  statements  by  the  representatives  of  the  counties.  The 
law  provides  that  a  hearing  shall  be  given  to  persons  represent- 
ing the  counties  and  it  had  become  a  custom  for  those  to  be  sent 
as  representatives  who  could  most  vividly  describe  the  unpros- 
perous  features  of  the  county's  situation.  In  the  good  old  days, 
as  the  commission  has  put  it,i  "  The  occasion  for  the  state  equal- 
ization is  generally  one  of  days  filled  with  woe  and  gloom.  Mes- 
sengers who  are  sent  from  the  counties  are  those  who  can  best 
picture  the  swamps,  barren  and  unfruitful  fields,  and  who  can 
leave  the  deepest  impression  of  great  desolation." 

'  Board  of  State  Tax  Commissioners,  Report,  1900,  p.  44. 


298  THE  STATE  TAX  COMMISSION 

These  exaggerated  representations  have  been  of  greater  weight 
than  the  tax  commission's  calculations  in  most  of  the  state  equali- 
zations since  the  latter  was  created.  In  1901  the  commission 
made  an  earnest  effort  to  persuade  the  state  board  of  equalization 
to  equalize  on  the  basis  of  full  cash  value. ^  This  position  was 
sustained  by  the  attorney-general,  who  pointed  out  in  his  ruling 
that  the  constitutional  and  statutory  requirement  of  full  value 
should  be  made  the  basis  of  the  equahzation,  not  only  in  the 
interests  of  equity  among  counties  but  in  order  to  protect  certain 
funds  which  were  supported  by  levies  on  the  valuation  as  deter- 
mined by  the  state  board  of  equalization.  In  further  support  of 
its  contentions  the  commission  submitted  elaborate  data  regard- 
ing values  for  both  real  and  personal  property;  but  in  spite  of 
these  efforts  it  confessed  with  evident  disappointment  that  the 
equahzed  valuation  was  still  many  millions  below  the  value  of 
real  and  personal  property  in  the  state.^ 

Evidence  of  the  lack  of  harmony  in  1906  is  seen  in  the  follow- 
ing comment,  taken  at  random  from  the  clipping  files  of  the 
tax  board :  ^ 

It  is  s^aid  on  good  authority  that  the  state  board  of  equalization  .  .  .  has 
become  satisfied  of  the  unreliability  of  the  tax  commission's  estimate  of 
valuations,  and  that  the  commission's  figures  have  been  used  only  incident- 
ally in  making  the  tentative  assessments  now  under  consideration.  .  .  . 
However  conscientious  the  tax  commission  may  have  been  in  the  preparation 
of  its  estimates,  it  is  claimed  that  it  did  not  have  the  necessary  force  of  em- 
ployees to  make  the  required  investigations,  and  that  necessarily  its  esti- 
mates had  to  be  based  largely  on  guesswork. 

Having  satisfied  its  scientific  conscience  by  rejecting,  on  the 
ground  of  inadequacy,  the  only  careful  attempt  at  proper  valua- 
tions which  had  been  made,  the  board  was  then  at  liberty  to  turn 
to  the  time-honored  custom  of  hearing  the  orators  from  the 
various  counties,  on  the  basis  of  whose  misrepresentations  the 
equahzation  was  largely  made. 

The  presence  of  the  chairman  of  the  board  of  tax  commission- 
ers on  the  state  board  of  equalization  has  induced  the  latter  to  re- 
ceive the  commissioners'  recommendations  since  191 1  with  much 

^  Board  of  State  Tax  Commissioners,  Report,  1902,  pp.  35-49. 
*  Ibid.  ^  Iron  Mountain  Tribune,  August  29,  1906. 


TAX  COMMISSIONERS  OF  MICHIGAN  299 

greater  respect,  though  it  has  not  sufficed  to  secure  their  accept- 
ance without  change.  The  following  table  indicates  the  improve- 
ment that  has  been  effected.  It  is  a  grouping  of  the  percentages 
of  values  as  equalized  to  full  values  as  recommended  by  the 
commission.  In  1906  the  equaUzed  valuations  covered  a  wide 
range  and  a  number  of  counties  were  equalized  at  greatly  dif- 
ferent percentages  of  the  estimated  true  value.    In  191 1   the 

Number  of  Counties  in  Percentage  Groups  Representing  the  Ratio  of 
Equalized  to  Full  Value* 

Number      of      Counties      in 
Percentage  groups  iqo6 

55-59-9 I 

60-64.9 2 

65-69.9 7 

70-74-9 8 

75-79-9 8 

80-84.9 13 

85-89-9 15 

90-94.9 16 

95  and  above 12 

82      82      83      84 

range  was  still  excessive  though  there  was  much  greater  concen- 
tration about  the  percentages  75-85  per  cent  of  full  value.  In 
1914  seventy  of  the  eighty-three  counties  were  equalized  at  85- 
89.9  per  cent  of  estimated  full  value.  For  reasons  best  known  to 
its  members  the  board  of  equahzation  scaled  down  the  tax  com- 
mission's figures  but  the  counties  were  left  more  nearly  in  a  rela- 
tively equitable  position  than  had  ever  been  the  case  before, 
although  the  above  figures  do  not  reveal  the  vicious  favoritism 
that  was  displayed.  The  average  for  the  state  was  lowered  to 
84  per  cent  by  the  singular  treatment  of  Wayne  county  contain- 
ing the  city  of  Detroit.  This  county  was  equalized  at  75  per  cent 
of  the  commission's  estimate.  Since  it  contained  a  total  valua- 
tion of  $630,613,132,  this  action  was  really  a  discrimination  in 
favor  of  about  one-fourth  of  the  entire  wealth  of  the  state.  The 
representatives  from  Wayne  county  made  a  very  strong  appeal  to 

1  Compiled  from  data  in  the  Reports  of  the  State  Board  of  Equalization. 


I9II 

1914 

191C 

I 

5 

.. 

7 

I 

7 

I 

5 

42 

4 

31 

IS 

4 

46 

5 

70 

3 

I 

I 

300  THE  STATE  TAX  COMMISSION 

the  board  of  equalization  and  attacked  with  especial  severity  the 
methods  and  results  of  the  state  tax  commission  in  the  city  of 
Detroit.^  All  in  all,  however,  there  was  a  much  closer  adherence 
to  the  scale  of  values  recommended  by  the  tax  commission  in 
1914  than  had  ever  been  known  before.  No  sufficient  explanation 
appears  for  the  consistent  scaling  down  of  the  commission's  recom- 
mendations to  approximately  84  per  cent  of  estimated  full  value. 
The  results  in  191 6  indicate  a  greater  disregard  by  the  board 
of  equalization  of  the  tax  commission's  figures  than  in  1914,  as 
shown  by  the  use  of  a  lower  percentage  of  full  valuation  and  by 
greater  discrimination  among  the  counties.  As  in  19 14  special 
favor  was  accorded  Wayne  county,  which  was  equalized  at  70.5 
per  cent  of  the  tax  commission's  estimate  of  its  full  value.  This 
reduction  lowered  the  percentage  of  full  value  for  the  state  as  a 
whole  to  77.0  per  cent.  The  lower  percentage  of  the  commission's 
estimate  of  full  value  was  accepted,  ostensibly  at  least,  in  order 
to  prevent  an  increase  of  taxes  through  larger  appropriations  for 
school  purposes.  These  appropriations  are  fixed  by  law  as  a 
certain  levy  upon  the  equalized  valuation  as  established  by  the 
state  board  of  equalization. ^  The  board  proceeded,  therefore,  to 
equahze  in  19 16  by  distributing  the  equahzed  aggregate  for  19 14 
—  $2,800,000,000  —  among  the  counties.  The  commission's 
aggregate  for  1916  was  $3,634,000,000.  According  to  the  usual 
practice,  more  weight  was  again  given  to  the  loose  and  offhand 
statements  of  the  representatives  from  the  counties  than  to  the 
carefully  prepared  report  of  the  tax  commissioners.  The  politi- 
cians on  the  board  of  equalization  probably  felt  that  they  should 
make  some  display  of  authority.  They  certainly  had  a  deeper 
regard  for  the  political  strength  of  the  county  representatives 
than  for  the  specialized  attainments  of  the  tax  commission.  It  is 
evident  that  they  must  rely  upon  advice  from  some  source,  for 
they  are  clearly  much  less  capable  of  defending  or  justifying  any 
percentage  of  the  commission's  figures  that  they  might  have 
chosen  than  the  commission  was  to  uphold  its  own  results  after 
the  time  and  labor  spent  in  preparing  them;  but  the  choice  of 
advisers  has  been  quite  unfortunate. 

^  State  Board  of  Equalization,  Report,  1914,  pp.  131-151.       ^  Ibid.,  1916,  p.  14. 


TAX  COMMISSIONERS  OF  MICHIGAN  301 

One  undesirable  result  of  the  board's  action  was  the  demoraliz- 
ing effect  on  the  commission's  fight  for  higher  valuations.  The 
latter  has  been  working  steadily  since  191 1  for  full  cash  value, 
and  in  recent  years  it  has  made  more  thorough  and  drastic  use  of 
its  powers  of  review  and  reassessment  than  any  other  tax  com- 
mission in  the  United  States.  Its  efforts  in  this  direction  were  not 
furthered  by  a  general  reduction  in  equalization,  one  inference 
from  which  would  be  that  the  commission's  figures  were  in  excess 
of  full  value. 

This  summary  treatment  of  the  commission's  results  must  also 
impair  the  prestige  of  the  latter  in  the  opinion  of  the  general 
public.  The  newspaper  item  quoted  above  ^  illustrates  how 
readily  a  certain  element  in  the  state  acclaimed  the  discomfiture 
of  the  expert  administrator  at  the  hands  of  the  politician. 

From  this  review  of  the  commission's  share  in  state  equalization 
it  is  clear  enough  that  the  state  board  of  equalization  is  a  super- 
fluous institution  and  should  be  abolished.^  The  board  of  state 
tax  commissioners  is  now  assisting  in  this  function  and  is  the  only 
administrative  body  in  the  state  qualified  to  exercise  it.  Formal 
approval  of  its  results  by  a  state  board  of  equalization  will  do 
neither  harm  nor  good,  but  the  possibilities  of  obstinacy  or 
partizanship  offer  too  serious  a  menace  to  be  tolerated. 

The  Administeation  of  Corporation  Taxes 

As  was  indicated  above,  the  creation  of  the  board  of  state  tax 
commissioners  itself  had  been,  in  Michigan  as  in  Wisconsin,  the 
result  of  efforts  to  subject  the  corporations  to  their  fair  share  of 
taxation.  Throughout  the  nineties  and  even  earlier  there  had  been 
general  dissatisfaction  with  the  system  of  corporate  taxation  and 
the  discontent  was  increased  by  the  greater  weight  of  the  taxes 
laid  on  other  property  during  the  years  of  hard  times.  In  his 
exaugural  message  Governor  Rich  had  recommended  at  least 
six  new  taxes,  four  of  which  were  to  be  upon  various  classes  of 
corporations.^    Governor  Pingree  was  even  more  emphatic  in  his 

^  Cf.  above,  p.  298. 

*  The  tax  commission  recommended  this  change  in  1914.    Report,  1914,  p.  33. 

'  Hedrick,  op.  cit.,  ch.  3. 


302  THE  STATE  TAX  COMMISSION 

denunciation  of  the  results  achieved  under  the  methods  then  in 
use.   In  his  inaugural  message  he  said: ' 

The  system  of  taxing  earnings  began  in  187 1.  It  has  worked  disastrously 
for  the  state.  It  is  objectionable  in  many  ways.  It  opens  the  door  for 
fraud,  against  which  the  state  has  no  protection.  The  state  is  practically 
compelled  to  accept  the  reports  made  to  it  by  the  railroad  companies. 

The  criticisms  against  the  gross  earnings  system  were  well 
summed  up  in  the  first  report  of  the  board  of  state  tax  commis- 
sioners.2  The  first  objection  was  that  the  apportionment  of 
earnings  to  Michigan  on  a  car-mileage  basis  was  unfair  to  that 
state.  Instances  were  on  record  in  which  the  average  earnings  for 
a  system  were  far  above  the  average  earnings  credited  to  Michi- 
gan mileage.  In  the  second  place  there  were  large  sums  omitted 
from  income  owing  to  the  rule  of  the  Interstate  Commerce  Com- 
mission that  only  the  net  balances  for  car  mileage  and  switching 
charges  need  be  shown.  It  was  estimated  that  the  reported  gross 
income  was  annually  reduced  millions  of  dollars  by  this  practice. 
Thirdly,  the  statute  was  unjust  in  that  it  took  no  account  of  the 
differences  in  operating  cost  and  thus  did  not  affect  the  roads 
uniformly.  Finally,  the  receipts  from  this  source  were  too  un- 
steady to  constitute  a  reliable  feature  of  the  state  financial  system. 
For  all  of  these  reasons  the  agitation  against  the  gross  earnings 
tax  was  increasingly  successful,  culminating  ultimately  in  the 
removal  of  that  tax. 

This  change  was  accomplished  only  slowly,  however,  notwith- 
standing the  dissatisfaction  which  prevailed.  The  opponents  of 
railroad  tax  reform  were  able  to  defeat  immediate  changes,  even 
in  1899,  by  substituting  the  proposal  for  a  tax  commission  which 
should  study  conditions  and  report  at  the  next  session  of  the 
legislature.  Similar  tactics  were  being  pursued  in  Wisconsin  at 
the  same  time  and  for  the  same  purpose,^  but  in  both  states  the 
delay  was  only  temporary  and  the  gross  earnings  system  was 
overthrown,  largely  through  the  efforts  of  the  respective  tax 
commissions. 

1  Inaugural  Message  of  Governor  Pingree,  1896.  Sen.  Jour.,  p.  53. 
*  Board  of  State  Tax  Commissioners,  Report,  1900,  pp.  143  ff. 
'  Cf.  above,  p.  239. 


TAX  COMMISSIONERS  OF  MICHIGAN  303 

In  furtherance  of  their  obstructionist  policy  the  conservatives 
introduced  into  the  tax  commission  bill  of  1899  a  provision  for  a 
valuation  of  the  corporations  paying  specific  taxes.  The  equiva- 
lent rate  of  ad  valorem  taxation  was  to  be  calculated  and  then  the 
specific  taxes  were  to  be  compared  with  the  taxes  paid  by  other 
property  in  the  state. ^  In  fulfillment  of  this  duty  the  commission 
was  finally  led,  after  a  thorough  examination  of  the  methods  then 
in  use  in  the  various  states  for  corporate  valuation,  to  adopt  the 
physical  appraisal. 

The  history  and  details  of  this  famous  project  are  too  well 
known  to  be  entered  upon  here.^  Briefly  it  consisted  of  a  survey 
and  valuation  of  all  the  physical  property  by  a  corps  of  engineers 
and  experts,  headed  by  Professor  M.  E.  Cooley  of  the  Engineer- 
ing School  of  the  University  of  Michigan.  The  intangible  ele- 
ments of  value  were  appraised  by  Professor  H.  C.  Adams,  for 
many  years  statistician  of  the  Interstate  Commerce  Commission. 
The  result  was  the  demonstration  of  the  contention  which  had 
been  urged  for  so  long,  viz.,  that  the  railroads  were  paying  a  much 
lower  rate  of  taxes  than  other  forms  of  property,  though  the  dif- 
ference was  not  as  great  as  the  advocates  of  ad  valorem  taxation 
had  expected.*  Following  this  appraisal  and  the  constitutional 
amendment  of  1900,  a  law  was  passed  providing  for  ad  valorem 
taxation  of  railroads,  union  station,  express,  stock  car,  and  equip- 
ment car,  companies.*  The  valuation  was  to  be  made  by  a  state 
board  of  assessors  composed  of  the  board  of  tax  commissioners. 
Sleeping  car  companies  were  added  in  1905  ^  and  telegraph  and 
telephone  companies  in  1909.''  Notwithstanding  the  popularity 
of  the  physical  appraisal  no  trace  of  its  influence  is  to  be  found  in 
the  law  itself,  which  omits  all  reference  to  the  subject  in  the 
enumeration  of  the  data  prescribed  to  be  compiled  by  the  state 
assessors. 

^  Public  Acts  of  Michigan,  1899,  No.  154. 

2  Cf.  Board  of  State  Tax  Commissioners,  Report,  1900,  pp.  66-70.  Also,  Report 
of  the  United  States  Industrial  Commission,  1901,  ix,  pp.  373-387. 

'  Testimony  of  H.  C.  Adams  before  the  hidustrial  Commission  of  1901,  ix,  p.  381. 
*  Public  Acts  of  Michigan,  1901,  No.  173. 
^  Ibid.,  1905,  No.  282. 
'  Ibid.,  1909,  No.  49. 


304  THE  STATE  TAX  COMMISSION 

The  several  classes  of  corporations  are  required  to  report 
annually  to  the  state  assessors  the  following  general  data  regard- 
ing every  company's  business,  the  statements  to  be  supported  by 
the  oath  of  the  president  or  other  leading  officer: 

1.  Organization  data,  including  name  of  company,  state  issuing  charter, 
addresses  of  officers  and  of  the  Michigan  agents. 

2.  Capitalization  data,  including  number  of  shares  with  par  and  market 
value. 

3.  Property  data,  including  a  detailed  statement  of  personal  property, 
with  a  list  of  the  moneys  and  credits  owned  in  Michigan  on  assessment 
day;  the  real  estate  and  personal  property  owned  outside  the  state; 
mileage  of  the  system  within  and  without  the  state. 

4.  Financial  data,  covering  the  income  accounts  and  balance  sheets. 

In  addition  to  the  above  information,  specific  pro\dsions  are 
devoted  to  each  class  of  corporations,  covering  the  further  details 
to  be  reported  by  them.  The  board  of  state  assessors  is  em- 
powered to  call  for  any  further  information  which  it  may  desire, 
though  in  the  case  of  sleeping  car  companies  it  is  limited  to 
requiring  further  statements  relative  to  the  information  required 
by  the  original  act.  Since  the  information  to  be  furnished  under 
the  original  act  is  of  a  very  general  character  the  proper  assess- 
ment of  these  companies  is  somewhat  hampered. 

The  physical  appraisal  has  been  used  for  the  telegraph  and 
telephone  companies  as  well  as  for  the  railroads.  Its  appHcation 
to  the  first  two  classes  of  corporations  has  involved  no  principles 
or  results  which  call  for  special  discussion.  After  noting  briefly 
some  points  which  have  arisen  in  the  assessment  of  the  other 
classes  of  corporations,  attention  will  be  turned  to  the  important 
topic  of  railroad  appraisal  and  valuation. 

Sleeping  car  and  express  companies  are  to  be  valued  on  the 
mileage  basis.  The  state  assessors  may  fix  the  value  of  the  cars, 
in  the  first  case,  and  of  the  stocks  and  bonds  in  the  second  case, 
according  to  such  data  as  may  be  obtained.  This  valuation  for 
the  entire  system  is  to  be  assigned  to  the  state  on  the  mileage 
basis;  and  it  is  to  be  taxed  at  the  average  state  rate  for  state 
purposes.  The  problem  of  assessing  express  companies  was 
greatly  complicated  at  first  by  their  contention  that  ocean  mileage 
should  be  included  in  the  distribution  of  values,  chough  it  was 


TAX  COMMISSIONERS  OF  MICHIGAN  305 

admitted  that  the  business  done  over  ocean  routes  amounted  to 
only  about  one- twentieth  of  the  total  business;  or,  as  the  ocean 
mileage  was  three  times  the  railroad  mileage,  to  about  one- 
sixtieth  of  the  total  business  on  a  mileage  basis. ^  The  board  of 
assessors  labored  with  this  difficulty  until  1909,  effecting  such 
compromises  with  the  companies  as  it  could.  In  this  year  an 
amendment  was  secured  authorizing  the  board  to  "  make  such 
allowance  for  such  ocean  routes  of  any  company  as  in  its  judg- 
ment will  bring  such  routes  upon  a  parity  with  its  other  routes, 
being  guided  therein  by  the  relative  mileage  values  and  earning 
capacities  of  such  ocean  and  other  routes."  ^  Since  this  amend- 
ment the  board  has  had  no  difficulty  in  arriving  at  a  proper 
basis  of  apportionment  of  the  business  between  the  two  kinds 
of  mileage. 

Notwithstanding  the  disposal  of  this  difficulty  the  question 
may  well  be  raised  in  ^Michigan  as  elsewhere  whether  the  ad 
valorem  system  provides  the  ideal  method  of  assessing  such 
businesses,  practically  the  whole  tangible  property  of  which  is  of 
such  a  migratory  character.  It  is  very  much  like  "  assessing  the 
birds  "  as  the  commission's  chief  clerk  put  it,  to  assign  values  to 
the  business  of  these  companies  in  any  particular  state;  and 
aside  from  the  difficulty  of  an  effective  administration,  the  prob- 
lem of  accurately  determining  the  real  taxable  capacity  of  such 
companies  is  still  largely  unsettled. 

The  methods  to  be  followed  in  the  valuation  of  railroad  prop- 
erty were  left  practically  untouched  by  the  statute  except  for  the 
suggestion  that  the  assessors  should  be  guided  by  the  proportion 
of  main  track  mileage  within  and  without  the  state.  The  term 
"  property  "  was  extended,  after  a  considerable  struggle  in  the 
legislature,  to  include  franchises,  though  "  said  franchises  (were) 
not  to  be  directly  assessed,  but  (were)  to  be  taken  into  considera- 
tion in  determining  the  value  of  other  property."  The  Cooley- 
Adams  appraisal  valued  the  "  corporate  excess  "  by  capitaHzing 
the  residuum  of  net  earnings,  obtained  by  deducting  from  gross 
income  suitable  allowances  for  expenses  of  operation,  a  fair  return 

^  Board  of  State  Tax  Commissioners,  Report,  1906,  pp.  37-40. 
*  Public  Acts  of  Michigan,  1909,  No.  49. 


3o6  THE  STATE  TAX  COMMISSION 

on  the  physical  investment,  and  taxes.  The  combination  of  the 
physical  and  the  intangible  elements  of  value  gave  the  total. 

At  the  outset  of  its  experience  with  an  ad  valorem  tax  and 
before  the  actual  work  of  valuation  had  begun,  the  board  of  tax 
commissioners  seemed  convinced  that  the  only  safe  and  sound 
method  of  procedure  was  by  an  open  and  public  valuation,  per- 
formed by  men  of  such  standing  and  experience  "  that  not  the 
faintest  suspicion  would  attach  to  the  assessing  board  or  to  the 
corporations  themselves."  ^  So  strong  was  its  conviction  that  it 
added,  "  Any  private  office  valuation  would  lead  to  grave 
charges." 

The  administrative  and  other  difficulties  imposed  by  such  an 

ideal  program  were  too  great,  however,  and  it  was  not  long  ere 

the  board  was  found  explaining  its  failure  to  adhere  to  the  rules 

of  procedure  which  had  been  so  confidently  enunciated  before  the 

magnitude  of  the  task  had  been  fully  realized.   Thus,  in  1902,  it 

said:  ^ 

The  definition  of  cash  value  is  so  broad  in  this  state  that  it  necessarily 
includes  every  element  of  value,  and  the  conception  of  the  valuation  of  rail- 
road property  that  does  not  include  its  meaning  must  be  incomplete.  It  is, 
therefore,  the  opinion  of  this  board  that  no  one  plan  may  be  arbitrarily  ap- 
plied, but  that  each  individual  property  should  be  subjected  to  an  exami- 
nation covering  every  possible  phase  of  the  question. 

The  Ontario  Commission  on  Railway  Taxation,  who  were  much 
impressed  with  the  work  and  results  of  the  Michigan  board, 
expressed  thus  the  reasons  for  this  change  of  method:^ 

The  Board  of  Tax  Commissioners  were  themselves  compelled  to  extend 
the  range  of  their  basis  of  valuation  until  they  seemed  to  cover  every  known 
method.  In  the  end,  as  .  .  .  one  of  the  Commissioners  stated,  "  When  it 
comes  to  a  question  of  the  ultimate  valuation  of  railroads,  each  member  of 
the  board  has  his  own  opinion."  The  result  has  been  that  the  valuation 
which  is  actually  put  upon  the  railroads  is  a  sort  of  compromise,  which  differs 
very  materially  indeed  from  the  expert  valuation  of  Professors  Cooley  and 
Adams.  Their  new  method  has  also  compelled  the  Board  of  Tax  Commis- 
sioners to  depart  so  completely  from  their  original  ideal  of  having  the 
grounds  of  valuation  made  a  pubUc  record,  that  no  factor  in  the  valuation  of 
the  railroads  is  made  public.    An  aggregate  and  final  valuation  is  simply 

1  Board  of  State  Tax  Commissioners,  Report,  1900,  p.  64. 

2  Ihid.,  1902,  p.  51. 

'  Report  of  the  Commission  on  Railway  Taxation  of  Ontario,  1905,  pp.  47,  48. 


TAX  COMMISSIONERS  OF  MICHIGAN  307 

placed  upon  each  railroad  by  a  method  which,  however  conscientious  on  the 
part  of  the  assessors,  neither  the  railway  nor  the  public  is  permitted  to  dis- 
cover. Indeed,  one  cannot  but  sympathize  with  the  perfectly  frank  admis- 
sion of  the  board  that  were  they  to  reveal  the  grounds  of  their  valuation 
they  would  simply  invite  endless  criticism  and  objection  on  the  part  of  the 
railroads  and  other  corporations  which  they  are  required  by  law  to  assess. 

The  experience  which  apparently  rewarded  the  efforts  of  the 
Canadian  Commission  to  discover  more  detailed  information 
with  regard  to  the  actual  methods  used  in  determining  valuations 
has  been  repeated  more  recently  by  the  present  writer.  From  all 
of  the  replies  to  questions  and  from  all  of  the  statements  that 
could  be  found  concerning  the  methods  used,  it  may  safely  be 
said  that  the  final  figures  have  been  the  result  of  compromises 
among  conflicting  factors  and  interests.  The  Ontario  Commission 
ventured  the  shrewd  suspicion  that  the  members  of  the  board 
of  assessors  did  not  have  a  definite  policy  of  railroad  valuation, 
and  added  the  very  pertinent  criticism  that  ^ 

.  .  .  such  a  system  has  the  fatal  defect  of  making  it  impossible  for  the 
railroads  or  the  public  to  distinguish  between  the  most  accurate  and  con- 
scientious valuation,  and  mere  ignorant  guesswork  or  quite  prejudiced  and 
even  dishonest  returns. 

The  view  that  the  usual  result  has  been  a  compromise  is  sup- 
ported by  the  well-known  fact  that  the  members  of  the  board  have 
generally  divided  into  "  high- value  "  and  "  low- value  "  men 
through  their  allowance  of  varying  degrees  of  importance  to  dif- 
ferent indicia  of  value.  Not  infrequently  has  the  press  of  the 
state  set  forth,  as  among  the  qualifications  of  proposed  ap- 
pointees, their  attitude  toward  a  high  valuation  of  the  railroads. ^ 
The  figures  for  1903  indicate  the  presence  on  the  board  at  that 
time  of  a  majority  of  "  high-value  "  men.  The  level  of  this  year 
has  never  again  been  reached  though  the  assessments  have  shown 
some  advance  in  recent  years.^ 

rXi;  Comparatively  little  use  appears  to  have  been  made  of  the 
Cooley-Adams  appraisal  in  the  actual  valuation  as  those  figures 
have  been  allowed  to  become  obsolete.   No  effort  has  been  made 

^  Report  of  the  Commission  on  Railway  Taxation  0}  Ontario,  1905,  p.  53. 
^  Cf.  data  in  the  clipping  files  of  the  Board. 
'  Cf.  figures  below,  p.  329. 


308  THE  STATE  TAX  COMMISSION 

to  keep  them  up  to  date  except  through  such  data  as  the  railroads 
themselves  have  supplied.  In  1 910  these  data  as  well  as  the  whole 
method  of  physical  valuation  were  rejected  as  being  unsatisfac- 
tory and  unsuited  to  Michigan  conditions.^  The  feature  most 
criticized  was  the  inclusion  of  corporate  excess  when  it  existed 
and  the  failure  to  make  a  deduction  from  the  physical  value  when 
a  fair  profit  was  not  being  earned  upon  the  investment.  Of  the 
one  hundred  and  twenty-three  roads  assessed,  twenty-six  had  an 
element  of  corporate  excess  in  19 10  while  the  remaining  ninety- 
seven  had  none.  For  the  latter  group  the  engineer's  figures  were 
taken  as  the  assessed  valuation  with  no  deduction  for  the  fact 
that  the  operations  were  being  conducted  at  a  loss.  It  should  be 
pointed  out,  however,  that  the  board's  application  of  an  abiKty- 
to-pay  theory  to  railroads  is  not  in  harmony  with  the  spirit  of  the 
general  property  tax,  under  which  many  other  forms  of  property, 
varying  widely  in  productive  capacity,  are  taxed  at  the  same 
rate  and  without  lawful  deductions.  In  his  testimony  before  the 
Industrial  Commission  Professor  Adams  anticipated  this  objec- 
tion by  showing  that  such  reductions  below  the  cost  of  reproduc- 
tion were  not  made  in  the  assessment  of  other  property.^  The 
opposition  to  the  physical  valuation  has  disappeared  with  the 
change  of  personnel  in  the  board  of  tax  commissioners  and  in  19 14 
a  reappraisal  of  railroad  property  was  recommended,  with  special 
reference  to  the  use  of  such  data  for  assessment  and  taxation  pur- 
poses.^ Two  years  later  the  board  stated  that  the  basis  of  the 
system  of  valuing  public  utilities  was  the  physical  appraisal,  but 
inasmuch  as  this  gave  reproduction  cost  and  not  "  cash  value," 
it  was  necessary  to  modify  this  result  in  the  light  of  the  earnings 
of  the  various  companies.^  This  reversion  to  the  former  policy 
has  been  but  the  application  of  the  full- value  idea  which  the  pres- 
ent board  has  been  following  in  its  vigorous  review  and  reassess- 
ment of  the  other  property  in  the  state.   The  railroads  should  be 

1  Board  of  State  Tax  Commissioners,  Report,  1910,  pp.  55  ff.  Also,  R.  H. 
Shields,  "  Railroad  Taxation  Problems,"  in  Proceedings  of  the  National  Tax  Con- 
ference, 1910,  pp.  231-241. 

2  Report  of  the  United  States  Industrial  Commission,  1901,  ix,  p.  381. 
'  Board  of  State  Tax  Commissioners,  Report,  1914,  pp.  38,  39. 

*  Ihid.,  1916,  pp.  14,  15. 


TAX  COMMISSIONERS  OF  MICHIGAN  309 

put  on  the  same  basis  of  valuation  as  general  property  and  to  this 
end  a  reappraisal  has  seemed  necessary. 

The  problem  of  equity  between  the  railroads  and  other  prop- 
erty has  occasioned  much  difficulty  for  the  board,  which  has  been 
led  by  circumstances  to  deal  more  leniently  with  the  railroads 
than  the  facts  of  actual  valuation  would  seem  to  warrant.  The 
board  has  held  the  view  that  without  the  compensation  of  a 
lighter  assessment  the  corporations  would  have  suffered  an  actual 
injustice.   In  brief  the  difficulty  has  been  as  follows: 

The  state  constitution  requires  that  all  property  which  is  to  be 
assessed  by  the  state  board  of  assessors  shall  be  taxed  by  a  uni- 
form rule,  and  that  "  the  rate  of  taxation  on  such  property  shall 
be  the  rate  which  the  state  board  of  assessors  shall  ascertain  and 
determine  is  the  average  rate  levied  on  other  property  upon  which 
ad  valorem  taxes  are  assessed  for  state,  county,  township,  school, 
and  municipal  purposes."  The  board  of  assessors  held  this  pro- 
vision to  be  capable  of  more  than  one  interpretation  and  in  its 
first  assessment  it  took  the  position  that  the  constitution  re- 
quired it  to  impose  the  same  tax  burden  upon  each  class  of  prop- 
erty.^ That  is,  the  board  beHeved  that  justice  required  it  to 
equalize  the  assessments  of  corporate  property  to  the  same  per- 
centage of  full  value  which  had  been  used  by  the  local  assessors  in 
listing  other  property. 

Proceeding  on  this  interpretation,  which  was  strengthened  by 
an  able  opinion  from  the  attorney-general,  the  board  attempted 
in  1902  to  equalize  between  the  property  taxed  under  general 
laws  and  that  assessed  by  the  central  authorities  by  raising  the 
assessed  valuation  of  the  former  to  the  true  cash  value,  according 
to  its  investigations  into  the  relation  of  assessed  to  true  value.^ 
This  lowered  the  average  rate  of  taxation,  based  on  true  value, 
and  lessened  the  amounts  which  the  localities  received  from  the 
corporate  properties  within  their  jurisdictions.  Suit  was  brought 
by  the  Detroit  Board  of  Education  for  the  correction  of  the  assess- 
ment and  the  state  supreme  court  sustained  the  complaint, 
ordering  a  redetermination  of  the  rate.^  The  principal  ground  for 

'  Board  of  State  Tax  Commissioners,i?e/»or/,  i902,p.69.      ^  /iki.,  1904,  pp.  35-37. 
'  Board  of  Education  of  Detroit  v.  Board  of  Stale  Tax  Commissioners,  133  Mich. 
116. 


3IO  THE  STATE  TAX  COMMISSION 

the  decision  was  that  the  law  for  years  had  provided  for  full  cash 
value  and  all  of  the  recent  administrative  improvements  strength- 
ened the  assumption  that  this  law  was  obeyed,  an  assumption 
which  should  be  accepted  in  the  absence  of  clear  proof  of  fraudu- 
lent departures  from  the  legal  standard  of  full  valuation.  This 
was  very  flimsy  ground  for  such  a  decision  as  it  was  a  matter  of 
common  knowledge,  of  which  the  court  could  hardly  escape 
taking  judicial  cognizance,  that,  on  the  average,  property  was 
not  assessed  at  full  value  and  had  not  been  for  many  years. 
Every  investigation  made  by  the  commission  had  confirmed 
this  conclusion,  while  every  effort  that  it  has  been  able  to  make 
thus  far  points  to  the  impossibihty  of  attaining,  under  the 
present  tax  system,  perfect  assessment  of  all  property  at  full 
cash  value. 

For  the  purpose  of  remedying  this  alleged  inequaHty  between 
corporate  and  other  property  the  legislature  passed  in  1905  the 
so-called  '*  Galbraith  law,"  which  introduced  the  standard  of  true 
cash  value  of  general  property,  as  ascertained  by  the  board  of  tax 
commissioners,  as  the  basis  for  determining  the  average  rate  of 
taxation  for  corporations.^  Though  the  sole  motive  of  the  board 
of  assessors  seems  to  have  been  that  of  attaining  more  exact 
justice  in  the  taxation  of  the  two  classes  of  property,  this  law  and 
the  first  assessment  under  it  called  forth  a  fierce  storm  of  protest 
in  which  the  board  was  accused  of  showing  favoritism  to  the  rail- 
roads, in  determining  for  them  a  lower  rate  than  that  which  was 
imposed  upon  the  poor  farmers  and  merchants.  Prompted  in  part 
by  this  popular  feeHng  and  in  part  by  his  own  belief  that  the  law 
was  unconstitutional,  the  attorney-general  brought  a  test  case  to 
the  state  supreme  court.  The  law  was  there  held  void  on  the 
ground  that  the  constitution  required  the  state  assessors  to  ascer- 
tain the  average  rate  which  was  actually  levied  on  other  property 
and  that  any  attempt  to  create  a  fictitious  sum  to  be  used  as  a 
divisor  in  determining  the  rate  would  be  clearly  inharmonious 
with  the  true  intent  of  the  constitution.^ 

1  Public  Acts  of  Michigan,  1905,  No.  282.  Cf.  Board  of  State  Tax  Commissioners, 
Report,  1906,  pp.  18-24. 

2  John  E.  Bird,  Attorney-general  v.  Board  of  State  Tax  Assessors,  143  Mich.  73. 


TAX  COMMISSIONERS  OF  MICHIGAN  3 1 1 

Since  this  decision  there  has  been  no  opportunity  to  equalize 
between  corporate  and  other  property,  except  by  making  such 
allowance  in  the  original  assessment  as  seemed  proper  in  order  to 
secure  approximate  equahty  of  tax  burden.  The  board  has  per- 
haps been  less  aggressive  in  its  valuations  than  it  would  have  been 
had  its  construction  of  the  constitution  prevailed,  though  it 
would  not  be  officially  admitted  by  any  member  of  the  Michigan 
board  of  assessors  that  such  considerations  had  been  allowed  to 
influence  the  assessment  of  railroad  or  other  corporate  property. 

The  state  board's  theory  of  determining  the  average  state  tax 
rate  would  have  increased  tremendously  the  significance  of  the 
methods  used  by  the  tax  commissioners  in  ascertaining  the  per- 
centage of  assessed  to  true  value.  It  would  have  necessitated  a 
better  organization  of  the  work  of  collecting  equalization  data 
and  a  far  more  rigorous  scrutiny  of  that  material  than  has  been 
exercised  by  the  Michigan  officials.  The  success  of  the  sales 
method  in  Wisconsin  removes  all  question  that  results  satisfac- 
tory to  both  sides  can  thereby  be  attained,  and  the  Wisconsin 
practice  of  equahzing  the  rate  of  taxation  on  corporate  property 
centrally  assessed  is  a  valuable  precedent  for  the  equity  of  this 
procedure. 

It  was  the  view  of  the  Commission  of  Inquiry  into  Taxation, 
however,  that  such  a  failure  to  equalize  could  not  be  regarded  as 
necessarily  inequitable.  It  pointed  out  the  possibilities  of  classi- 
fication of  property,  and  cited  the  oft-instanced  argument  that 
differences  in  the  rates  on  various  classes  of  property  might  be 
necessary  to  equality. ^  But  in  reply  it  should  be  said  that  until 
such  a  principle  has  been  definitely  formulated  and  approved 
in  Michigan,  there  is  no  guarantee  of  justice  in  such  sub  rosa 
appHcations  thereof. 

The  board  of  tax  commissioners  has  been  working  in  recent 
years  toward  another  solution  of  the  difficulty.  The  first  steps 
have  been  taken  toward  separate  taxation  of  intangibles,^  and  as 
classification  proceeds  the  tangible  property  can  be  placed  on  the 
duplicate  at  approximately  full  value  without  fear  of  great  dis- 

*  Report  of  the  Commission  of  Inquiry  into  Taxation,  1911,  p.  53. 

*  Public  Acts  of  Michigan,  191 1,  No.  91. 


312 


THE  STATE  TAX  COMMISSION 


crimination.  This  is  now  being  done  through  the  exercise  of  the 
board's  sweeping  powers  of  reassessment,  and  as  the  general  prop- 
erty of  the  state  is  reviewed  and  materially  advanced,  the  cor- 
porations may  fairly  also  be  assessed  upon  a  full  value  basis.  For 
this  purpose  the  board  asks  authority  to  make  a  new  physical 
appraisal  of  railroad  property. 

Inasmuch  as  the  ad  valorem  method  was  introduced  primarily 
for  the  purpose  of  increasing  corporation  taxes,  it  will  be  of  inter- 
est to  see  in  how  far  this  object  has  been  achieved.  The  follow- 
ing figures  show  the  relation  between  the  state  tax  on  general 
property  and  the  taxes  paid  by  the  railroads. 

State  Tax,  Total  Railroad  Taxes,  and  the  A^^RAGE  Tax  Rate  ^ 

Year    State  tax 

1898  $2,158 

1899  3,725 

1900  2,908 

1901  3,835 
Totals  $12,629 

1902  2,669 

1903  4,003 

1904  2,958 

1905  3,871 
Totals  $13,502 

The  most  striking  fact  presented  by  this  table  is  the  steady  and 
rapid  increase  in  both  the  state  tax  and  the  taxes  upon  the  rail- 
roads. The  quadrennial  totals  show  an  advance  from  1898-1901 
to  1910-13  of  over  60  per  cent  in  the  state  tax  and  over  240  per 
cent  in  the  railroad  taxes.  The  latter  increase  is  so  great  because 
of  the  relatively  low  taxes  that  were  paid  under  the  gross  earnings 
system,  as  compared  with  the  later  tax  burden.  In  the  last 
quadrennial  period  under  the  gross  earnings  tax  the  contributions 
of  the  railroads  amounted  to  only  41.7  per  cent  of  the  state  tax; 
while  in  the  first  quadrennial  period  under  the  ad  valorem  system 
the  tax  receipts  from  the  railroads  amounted  to  103  per  cent  of  the 
state  tax.  These  facts  constituted  a  perfectly  satisfactory  expla- 
nation for  everyone  in  the  state,  with  the  exception  of  the  rail- 

*  Compiled  from  the  biennial  reports  of  the  Board  of  State  Tax  Commissioners. 


Railroad 
taxes 

(000  omitted) 

4;Tafe^       Year    State  tax 

Railroad 
taxes 

Average 
tax  rate 
per  $1000 

$1,091 
1,240 
1,356 

1906  $3,384 

1907  4,886 

1908  4,194 

$3,409 
3,650 
3,733 

$16.47 
17.6 
18.01 

1,483 

i                    $5: 

,173 

17-49 

1909     5,929 
Totals  $18 

,393 

4,377 

$1 

20.67 
5,169 

3,288 

16.55 

1910     4,730 

4,347 

20.53 

3,756 

16.91 

1911     6,523 

4,372 

20.71 

3,330 

16.92 

1912     5,472 

4,387 

20.80 

3,527 

!                   $1, 

3,90 

17.40 
I 

1913     8.591 
Totals  $20, 

,296 

4,620 

$1 

21.56 
7,726 

TAX  COMMISSIONERS  OF  MICHIGAN  3  I  3 

road  owners,  of  the  soundness  of  the  contentions  used  as  slogans 
in  the  fight  for  the  ad  valorem  system.  If  the  railroads  were 
being  favored  under  the  old  system  the  new  method  has  equalized 
matters,  and  the  principal  motive  for  the  change  —  the  relative 
increase  of  railroad  taxes  —  has  certainly  been  attained. 

The  figures  for  the  next  quadrennial  period,  1906-09,  reveal  a 
more  rapid  increase  in  the  state  tax  than  in  those  paid  by  the 
corporations  centrally  assessed.  It  is  unnecessary,  of  course,  that 
the  railroad  taxes  keep  pace  with  the  state  tax.  The  slower 
advance  of  the  former  is  partly  accounted  for  by  the  fact,  already 
explained,  that  the  corporations  were  being  somewhat  more 
lightly  assessed  because  of  the  theories,  or  scruples,  of  the  state 
board  of  assessors  regarding  the  equity  of  the  existing  methods 
for  ascertaining  the  average  rate  of  taxation.  The  state  expendi- 
tures increased  very  rapidly  after  1905,  the  annual  outlay  being 
nearly  $5,000,000  greater  in  1913  than  in  1905.  This  increase  has 
been  most  marked  since  1910  and  by  1913  it  had  carried  the  vol- 
ume of  state  tax  to  such  a  level  that  it  now  appears  doubtful  if 
the  corporation  taxes  would  adequately  supply  the  state  needs, 
even  with  more  effective  assessment.  Since  the  report  of  the 
Special  Commission  of  Inquiry,  in  191 1,  there  has  been  little 
sentiment  in  favor  of  separation  of  sources  and  the  above  figures 
furnish  a  strong  argument  against  undertaking  such  a  program, 
so  far  as  the  state  finances  are  concerned. 

Another  point  to  be  noted  is  the  rather  striking  periodicity  of 
the  taxes  levied  and  the  average  tax  rate.  The  odd  years  show  a 
distinct  tendency  to  higher  state  taxes  and  since  1903  this  has 
been  true  also  of  the  railroad  taxes,  though  the  variations  have 
not  been  so  marked.  This  fluctuation  is  a  natural  resultant  of  the 
biennial  legislative  session.  The  greater  flexibility  of  the  ad 
valorem  system  has  steadied  the  state  tax  on  general  property  by 
equalizing  somewhat  the  strain  of  the  heavier  appropriations. 
Under  the  specific  system  the  direct  state  tax  must  bear  the  full 
burden  of  any  changes  in  the  volume  of  appropriations. 

Fully  as  significant,  in  some  respects,  as  the  more  direct  finan- 
cial gains  here  shown,  has  been  the  changed  attitude  of  the  cor- 
porate interests,  especially  the  railroads,  toward  tax  reform.  This 


314  THE  STATE  TAX  COMMISSION 

transformation  does  not  indicate  an  outburst  of  altruism,  but 
merely  the  struggle  to  escape,  or  shift,  a  part  of  the  tax  burden. 
After  the  efforts  to  lighten  this  burden  by  legislative  interpreta- 
tion of  the  constitutional  provision  for  an  "  average  rate  "  proved 
unavailing,  the  railroads  resorted  to  the  other  alternative  —  that 
of  seeking  to  compel  the  local  assessors  to  advance  general  prop- 
erty assessments  to  full  value.  To  this  end  the  railroads  at  one 
time  organized  an  informal  railroad  tax  commission  and  em- 
ployed a  former  member  of  the  board  of  tax  commissioners.  This 
agent  of  "  tax  reform  for  the  other  person  "  was  able  to  accom- 
plish but  Kttle  directly  in  the  way  of  higher  assessments.  The 
work  of  the  state  board  in  the  collection  of  sales  data  was  practi- 
cally duplicated,  but  beyond  this  little  was  achieved.  And  yet, 
the  fact  that  the  powerful  railroad  interests  were  with,  instead  of 
against,  the  tax  commission  in  its  own  fight  for  better  assessment 
conditions  was  of  material  significance  in  the  movement  toward 
greater  justice  in  the  tax  system.  Wherever  the  influence  of  the 
railroads  was  capable  of  influencing  local  elections  and  the  actions 
of  local  assessors  —  and  under  the  present  system  of  locally 
elected  and  responsible  officials  the  exertion  of  such  influence  has 
been  entirely  too  common  —  such  influence  would  be  used  in 
securing  the  increase  of  local  assessments  and  in  holding  up  the 
hands  of  the  tax  commission  in  its  efforts  to  secure  a  full  listing  of 
all  taxable  property  at  full  cash  value. 

The  Administration  of  Mine  Taxation 

The  ad  valorem  method  of  taxing  the  mining  properties  of  the 
state  was  adopted  in  1891  as  a  substitute  for  the  former  combina- 
tion of  tonnage  tax  for  state  purposes  and  local  ad  valorem  tax,* 
Either  the  inadequacy  of  the  method  or  the  insufficiency  of  its 
administration,  or  both,  had  given  rise  to  the  most  general  dis- 
satisfaction. To  remedy  this  situation  nothing  directly  was  done 
in  the  reform  legislation  of  1899,  and  the  only  relief  possible  was 
that  which  might  have  come  incidentally  from  the  more  effective 
supervisory  control  exercised  by  the  board  of  tax  commissioners 
over  the  process  of  local  assessment.  Even  this  avenue  of  ap- 
1  Board  of  State  Tax  Commissioners,  Report,  1900,  pp.  54-59. 


TAX  COMMISSIONERS  OF  MICHIGAN  3  1 5 

proach  to  the  problem  of  a  proper  assessment  of  the  mining 
properties  was  virtually  closed  in  1905  by  the  narrow  restriction 
of  the  board's  power  of  review.^  In  consequence  the  matter  of  the 
proper  assessment  of  these  properties  drifted  along  until  191 1 
when  the  legislature  directed  the  board  to  conduct  an  inventory 
and  appraisal  of  the  mines  of  Michigan. ^  This  dilatory  policy,  the 
responsibihty  for  which  rested  in  part  with  a  former  board,'^  did 
much  to  create  enemies  among  the  undiscriminating,  as  every 
instance  of  a  review  of  local  assessments  afforded  an  opportunity 
for  a  tirade  against  the  injustice  of  the  mine  assessments.  The 
newspapers  of  the  period  are  full  of  emphatic  and  at  times  bitter 
protests  against  the  discrimination  which  was  apparently  being 
shown. 

The  appraisal  of  191 1  was  made  by  an  expert  mining  engineer 
and  the  results  were  submitted  in  the  form  of  an  extensive  and 
comprehensive  survey  and  valuation  of  the  ore  and  mining  prop- 
erty.^ On  the  basis  of  this  report  the  board  ordered  sweeping 
advances  in  the  assessed  valuation  of  the  mines,  though  in  estab- 
Hshing  the  taxable  valuations  the  engineer's  figures  were  used 
merely  as  the  basis  on  which  more  conservative  calculations  were 
made.  Thus,  the  expert  had  calculated  the  existence  and  extent 
of  ore  deposits  which,  though  not  explored,  could  nevertheless 
be  assumed  to  exist  on  the  basis  of  the  position  of  known  bodies  of 
ore.  These  ore  beds  had  been  valued  by  the  engineer  and  in- 
cluded in  his  totals,  but  the  board  of  tax  commissioners  rejected 
such  indefinite  estimates.*  In  191 1  the  local  assessors,  following 
and  applying  the  old  methods  of  assessment,  had  placed  a  total 
valuation  of  $19,623,508  on  the  iron  mines;  the  expert  appraiser 
had  valued  the  same  properties  at  $119,150,000,  while  the  state 
board,  revising  the  local  figures  in  the  light  of  the  Finlay  appraisal, 
found  the  taxable  property  to  be  worth,  for  purposes  of  taxation, 
$85,642,5oo.« 

*  Cf.  below,  p.  324.  -  Public  Acts  of  Michigan,  191 1,  No.  114. 

^  In  1901  the  tax  board  had  advised  the  board  of  equalization  that  the  assessors' 
returns  on  iron  mines  were  correct  except  in  one  county.    Report,  1902,  p.  45. 

*  Appraisal  of  the  Mining  Properties  of  Michigan,  1911,  J.  R.  Finlay,  Engineer. 
^  Interview  with  the  Michigan  Board  of  State  Tax  Commissioners,  June,  191 2. 

'Comparative  figures  from  Report  of  the  board,  191 2. 


3l6  THE  STATE  TAX  COMMISSION 

The  inventory  and  appraisal  extended  to  all  of  the  other  more 
important  mineral  resources  of  the  state, ^  though  in  no  other  case 
were  the  amounts  involved  so  large  or  the  ensuing  action  of  the 
board  so  drastic.  In  the  case  of  the  copper  mines  the  engineer's 
report  made  it  clear  that  no  increase  of  assessments  was  neces- 
sary, as  these  properties  had  been  assessed  for  years  on  a  much 
higher  basis  than  the  iron  mines.  Thus,  in  1900,  the  copper 
mines  of  Houghton  county  alone  had  been  assessed  at  nearly 
three  times  the  total  for  all  of  the  iron  mines  of  the  upper 
peninsula.2  The  coal  area  was  found  to  be  irregular,  not  thor- 
oughly explored,  and  to  have  been  the  scene  of  many  costly  fail- 
ures; under  proper  conditions,  however,  it  constituted  a  field  of 
profitable  operations  to  which  the  same  principles  of  valuation 
should  be  applied  as  to  any  other  mining  property.  Salt,  lime- 
stone, cement,  and  brick  clay  deposits  were  investigated  but  in 
every  case  the  expert's  verdict  was  that  such  resources  contributed 
little  or  nothing  to  the  value  of  the  land  and  should  not  be  made 
the  basis  of  additional  taxes.  The  salt  business  was  conducted 
so  largely  as  a  subsidiary  industry  in  connection  with  sawmills 
that  it  was  construed  not  to  be  a  mining  industry  at  all. 

The  authorization  of  a  state  assessment  of  mines  lapsed  after 
one  year,  but  the  tax  commission  has  naturally  assumed  a  leading 
part  in  the  subsequent  valuation  of  mining  property.  Since  they 
are  acting  without  authority  here,  their  participation  has  been 
made  possible  only  by  the  consent  of  the  mine  owners,  who  have 
realized  the  inefficiency  of  the  local  assessors.  The  board  has 
naturally  made  the  Finlay  appraisal  of  191 1  the  basis  of  its 
subsequent  appraisals,  making  such  adaptation  as  has  seemed 
necessary  to  meet  local  conditions.  Beginning  with  1913  the 
state  geological  survey  has  supplied  the  expert  assistance  neces- 
sary for  estimating  the  tonnage  and  collecting  the  other  data 
requisite  to  the  appraisal. ^  It  is  beyond  the  scope  of  this  work  to 

'  In  1914  the  board  reported  that  the  copper  mines  were  still  assessed  at  cash 
value.    Report,  1914,  pp.  14,  15. 

^  Finlay,  op.  cit.,  pp.  66-82.  For  a  criticism  of  the  Finlay  method,  cf.  Uglow, 
"  Mine  Valuation  and  Assessment,"  Wisconsin  Geological  Survey,  Bull.  XLI,  1914, 
pp. 33-46. 

^  Board  of  State  Tax  Commissioners,  Report,  1914,  p.  58. 


TAX  COMMISSIONERS  OF  MICHIGAN  3  1 7 

enter  into  a  discussion  of  the  principles  of  mine  valuation.  The 
subject  is  complicated  and  there  is  wide  diversity  in  the  methods 
employed  by  different  tax  commissions  and  mining  experts.^ 
The  method  in  use  in  Michigan  will,  therefore,  be  only  briefly 
stated  in  order  to  bring  out  the  relation  of  the  board  of  tax 
commissioners  to  the  problem  of  mine  valuation. 

The  data  on  mine  property  and  operations  are  first  collected  by 
the  state  geologist,  who  then  visits  each  mine  for  the  purpose  of 
calculating  ore  reserves  and  checking  other  returns  that  have 
been  made.  The  commission's  preliminary  valuations,  which  are 
based  on  the  recommendations  of  the  expert  appraiser,  are  open 
to  the  operators  who  may  appear  at  pubHc  hearings  and  submit 
additional  data  or  arguments  relative  to  the  value  of  their  respec- 
tive properties.  After  these  hearings  the  assessed  valuations  are 
formally  fixed  and  reported  to  the  local  assessors,  by  whom  they 
are  placed  on  the  tax  rolls.  The  theory  of  appraisal  under  the 
Michigan  system  is  that  "  the  value  of  an  iron  mine  ...  is  the 
present  worth  of  the  sum  of  money  representing  the  calculated 
difference  between  total  receipts  from  sales  of  ore  and  the  cost 
of  marketing  the  product  based  on  the  entire  tonnage  which  the 
mine  may  be  expected  to  produce."  ^  The  total  tonnage  of  avail- 
able ore  is  calculated  by  the  geological  expert;  the  factor  of 
profits  is  found  from  the  financial  record  of  the  preceding  five 
years;  and  the  interest  rate  used  in  capitalization  is  that  which 
experience  has  found  to  be  necessary  to  attract  capital  into  the 
mining  industry.  The  results  of  the  appraisals  since  191 1  are 
shown  in  the  table  below: 

Iron  Mine  Assessments,  1911-14' 

Year  Valuation  Year  Valuation 

19" $85,529,075        1913 $82,534,231 

1912 81,097,089        1914 91,572,115 

In  191 2  the  board  was  without  the  expert  assistance  necessary  to 
make  a  proper  appraisal  and  its  figures  fell  off  from  those  of  191 1. 

'  Cf.  Discussion  in  Proceedings  of  the  National  Tax  Conference,  vii,  1913. 
*  Board  of  State  Tax  Commissioners,  Report,  1914,  p.  59. 
'  R.  C.  Allen,  "  Michigan  Iron-Ore  Reserves;   Method  of  Appraisal  for  Taxa- 
tion."    Reprinted  from  Mining  and  Engineering  World,  September  12,  1914. 


3l8  THE  STATE  TAX  COMMISSION 

The   subsequent  improvement  registers  the  advantage  to  be 
secured  from  the  assistance  of  experts. 

By  means  of  the  administrative  machinery  the  operations  and 
results  of  which  have  been  OutHned  in  the  foregoing  paragraphs 
it  has  been  possible  to  improve  materially  the  assessment  of  the 
main  classes  of  pubHc  service  corporations  and  of  the  more 
important  mining  properties  of  the  state.  There  still  remain  out- 
side the  fold  of  centralized  administration,  however,  certain 
classes  of  pubHc  service  corporations  as  well  as  the  whole  field  of 
private  corporations,  the  operations  of  some  of  which  are  suflS- 
ciently  extensive  and  important  to  suggest  placing  them  under 
the  jurisdiction  of  the  state  board  for  assessment  purposes.  Of 
the  so-called  public  service  corporations  the  assessment  of  which 
should  be  centralized  at  once,  the  more  important  are  the  inter- 
urban  hues,  the  street  railways,  and  the  hydro-electric  companies. 
In  many  cases  the  Hues  of  the  larger  concerns  extend  over  several 
tax  districts,  forming  a  single  profit-producing  plant  which  can  be 
valued  properly  only  when  regarded  as  a  unit.  Yet  the  assess- 
ment of  these  plants  is  still  performed  in  the  antiquated  and 
entirely  inadequate  fashion  of  a  piecemeal  valuation  of  the  tan- 
gible property  in  each  district  by  the  local  assessor.  The  wisdom 
of  central  assessment  of  these  corporations  is  slowly  being 
realized  over  the  country,  and  a  considerable  development  of  the 
principle  of  centraHzed  assessment  may  be  expected  within  the 
next  few  years.  Such  a  policy  has  frequently  been  recoimnended 
by  the  Michigan  board  but  thus  far  without  success. 

The  Special  Commission  of  Inquiry  of  191 1  proposed  a  plan  of 
central  assessment  for  private  corporations,  which  included 
central  control  of  accounting  systems  and  very  elaborate  returns 
to  the  state  authority.^  The  present  board  of  tax  commissioners 
recommends  that  all  corporations  doing  business  in  the  state  be 
required  to  make  reports  to  the  central  board,  but  does  not  go  so 
far  as  to  suggest  central  assessment.^  The  data  in  the  proposed 
reports  are  presumably  to  be  used  by  the  local  assessors  and  in 
review  proceedings  by  the  board  itself. 

'  Report  of  the  Commission  of  Inquiry  into  Taxation,  191 1,  pp.  47,  48. 

2  Board  of  State  Tax  Commissioners,  Report,  1912,  pp.  27,  28.    Ibid.,  1916,  pp. 


TAX  COMMISSIONERS  OF  MICHIGAN  319 

Central  Supervision  of  the  Local  Officials 

As  already  indicated  the  duty  of  supervision  was  the  one  posi- 
tive function  conferred  upon  the  board  of  tax  commissioners  by 
the  original  act,  in  contrast  with  the  various  lines  of  advisory 
investigation  which  were  later  to  develop  into  important  duties.^ 
The  supervisory  authority  conferred  involved  in  its  exercise  both 
advisory  and  mandatory  relations  with  the  local  officials  and  in 
each  of  these  directions  the  work  of  the  Michigan  board  has  been 
important,  though  the  results  have  only  confirmed  the  experience 
of  other  states  that  more  effective  control  over  the  local  assess- 
ment process  is  essential.  The  relations  of  the  state  board  to  the 
local  oflScials  have  been  threefold  in  character  —  instructive, 
constructive,  and  corrective.  By  the  first  is  meant  the  various 
ways  in  which  the  board  has  been  a  source  of  information  for 
the  assessors  in  their  work ;  by  the  second  the  actual  constructive 
work  which  has  been  performed  by  the  board  to  assist  the 
assessors  in  discovering,  valuing,  and  listing  property;  and  by 
the  third  the  corrective  powers  exercised  through  reviews, 
reassessments,  and  removal  of  officials. 

The  educational  work  of  the  board  was  conducted,  until  1913, 
along  the  conventional  lines  followed  by  tax  commissions  in 
other  states.  One  of  these  has  been  the  annual  visit  to  each 
county  as  required  by  law.  The  board  has  recently  condemned 
the  compulsory  routine  of  visits  and  has  recommended  that  it  be 
given  Hberty  instead  to  concentrate  its  energy  and  attention  each 
year  in  the  counties  most  in  need  of  visitation.^  In  the  absence  of 
county  conventions  of  the  local  officials  with  compulsory  attend- 
ance the  present  plan  of  an  annual  tour  of  the  counties  can  be  of 
little  value  as  there  is  no  possibility  of  meeting  personally  each 
township  assessor  in  these  necessarily  hasty  calls,  to  say  nothing 
of  making  an  adequate  inspection  of  their  work.  Such  inspections 

27,  28.  The  board  again  suggests  authority  to  compile  data  from  the  private  cor- 
porations which  would  enable  it  to  "  suggest  to  an  assessing  oflficer  the  proper 
assessment  when  called  upon  to  do  so." 

1  Cf.  above,  p.  290. 

*  Board  of  State  Tax  Commissioners,  Report,  191 2,  p.  30.  In  its  reviews  the 
board  has  pursued  this  poUcy. 


320  THE  STATE  TAX  COMMISSION 

would  be  practically  worthless  anyway  as  a  basis  of  judging  the 
character  of  the  work  done  without  an  examination  of  a  consider- 
able proportion  of  the  property  in  the  district,  and  of  this  there 
could  be  no  pretense. 

A  new  spirit  was  introduced  through  the  change  of  personnel  in 
1911-12  and  a  further  extension  of  the  board's  supervisory  powers 
in  1913.^  The  board  understood  this  legislation  to  mean  a  popular 
demand  for  state- wide  enforcement  of  the  full  value  rule  of  assess- 
ment, and  it  rightly  assumed  that  public  opinion  would  endorse 
and  sustain  any  businesslike  program  for  hastening  the  work  of 
placing  assessments  at  full  value.  Accordingly  it  changed  its 
whole  attitude  toward  the  local  officials.  A  plan  of  state- wide 
cooperation  with  the  latter  was  announced,  a  new  "  assessor's 
manual  "  was  published,  and  a  pamphlet  on  "  cash  value  assess- 
ments "  was  issued  for  wider  circulation.  The  new  manual  is 
entirely  free  from  dry  legal  chaff  and  is  filled  with  helpful  sug- 
gestions and  advice  for  the  assessor.  It  is  a  really  valuable  manual 
on  assessment  practice.  The  pamphlet  outKned  the  board's  plan 
of  cooperation,  explained  the  benefits  to  be  had  from  full  value 
assessments,  and  assured  the  people  at  large  of  the  board's  cheer- 
ful determination  to  enforce  the  law.  This  wholesome  program 
had  a  bracing  effect  upon  public  opinion,  which  quite  generally 
rallied  to  the  board's  support. 

The  constructive  phase  of  the  board's  supervision  represents  a 
more  extensive  attempt  than  has  been  made  in  any  other  state, 
with  the  possible  exception  of  Massachusetts,  to  collect  data  for 
the  assistance  of  the  local  officials.  That  the  results  have  been  no 
greater  is  strong  evidence  of  the  inefficiency  of  the  tax  system 
under  which  the  administration  has  worked.  The  data  collected 
have  pertained  to  several  of  the  more  elusive  classes  of  personal 
property,  the  failure  to  list  which  has  been  the  source  of  much  of 
the  mischief  in  the  local  administration  of  the  general  property 
tax.  The  largest  task  undertaken  in  this  connection  has  been,  of 
course,  the  valuation  of  the  iron  mines.  These  are  legally  asses- 
sable by  the  local  assessor  but  the  process  has  virtually  been 
transformed  into  a  state  assessment. 

1  Public  Acts  of  Michigan,  1913,  No.  153. 


TAX  COMMISSIONERS  OF  MICHIGAN  3  21 

Aside  from  the  mines,  the  board's  principal  constructive  work 
has  been  in  the  search  for  certain  forms  of  personal  property. 
The  most  extensive  compilation  of  material  of  this  sort  has  been 
that  of  the  data  relating  to  mortgages  which  were  taxed  under  the 
general  property  tax  previous  to  191 1.  The  local  registers  of 
deeds  were  the  active  agents  in  compiling  this  information,  which 
included  the  names  of  the  parties,  name  and  residence  of  the 
owner  of  the  mortgage,  the  amount  unpaid,  and  the  amount 
assessable  for  the  current  year.^  These  data  were  classified  and 
sent  out  to  the  assessors  who  were  expected  to  use  them  in  obtain- 
ing a  more  complete  assessment  of  mortgage  credits.  The  total 
mortgage  assessment  of  1899  did  not  exceed  $10,000,000,  and  in 
the  first  two  years  the  board  discovered  and  placed  on  the  tax 
rolls  more  than  $45,000,000  of  additional  mortgages.  The 
governor's  action  in  vetoing  a  bill  for  the  exemption  of  all  mort- 
gage credits  was  approved  by  the  board,  not  only  because  of  the 
impossibility  of  reconciling  its  provisions  relating  to  railroad 
mortgages  with  the  system  of  railroad  taxation  recently  intro- 
duced, but  also  because  of  its  disapproval  of  the  general  policy  of 
mortgage  credit  exemption. ^  The  success  of  the  first  few  years  of 
central  supervision  may  have  led  the  board  to  believe  that  such 
property  could  be  successfully  listed  under  centralized  adminis- 
tration. Such  an  expectation  could  hardly  have  been  realized, 
judging  from  general  experience;  and  the  facts  show  that  it  was 
not  reaKzed  in  Michigan.  This  is  seen  from  the  following  state- 
ment of  the  mortgages  returned  for  taxation  in  Michigan  since 
1901. 

Mortgage  Credits  Assessed  in  Michigan,  1901-11' 

Year                     Amount  Year                    Amount  Year  Amount 

1901 $55,250,106  1905....  $47,514,678  1909....  $42,524,594 

1902.  .  .  .        56,681,305  1906.  .  .  .        48,144,334  1910.  ...  .... 

1903 53,583,526  1907 46,684,549              1911 39,148,509 

1904 52,762,921  1908 44,341,263 

^  The  system  is  described  in  Board  of  State  Tax  Commissioners,  Report,  1902, 
p.  34;  ibid.,  1908,  pp.  14-24- 

2  Ibid.,  1902,  pp.  34,  35. 

'  From  data  in  the  biennial  reports  of  the  Board  of  Tax  Commissioners.  The 
figures  for  1910  are  not  available.  There  is  no  evidence  of  a  decline  in  the  total 
mortgages  in  the  state.    The  amount  of  mortgage  debt  on  farms  occupied  by  their 


322  THE  STATE  TAX  COMMISSION 

The  board  accounted  for  the  steady  decline  after  1902  in 
various  ways,  such  as  the  removal  of  owners  from  the  state, 
cancellation  and  investment  in  other  forms  of  property,  and  an 
assignment  of  the  mortgage  to  non-residents  with  an  unrecorded 
reassignment  back  to  the  resident  owner. ^  In  the  effort  to  locate 
Michigan  capital  invested  outside  the  state  the  board  in  1905-06 
extended  its  investigation  of  the  ownership  of  mortgage  credits 
into  neighboring  states. ^  These  inquiries  covered  the  counties 
adjoining  the  state  Hne  in  Ohio,  Indiana,  and  Wisconsin;  and  one 
county  in  Minnesota,  Iowa,  and  New  York,  respectively.  The 
total  face  value  of  the  mortgages  thus  discovered  was  $3,173,486, 
indicating  a  tendency  to  borrow  outside  the  state.  In  his  study  of 
mortgage  taxation  for  the  Wisconsin  tax  commission.  Professor 
T.  S.  Adams  concluded  that  the  conditions  of  mortgage  taxation 
in  Michigan  were  furthering  this  resort  to  lenders  outside  the 
state.^  The  conditions  referred  to  were  the  vigorous  efiforts  which 
were  being  made  by  the  board  to  locate  and  assess  all  taxable 
mortgage  credits.  Further  efforts  in  this  direction  were  aban- 
doned in  191 1,  and  a  mortgage  registry  tax,  modelled  after  the 
New  York  law,  was  substituted  for  the  uniform  rule.^  The 
administration  of  this  registry  tax  is  largely  in  the  hands  of  the 
county  officials,  and  the  only  duty  imposed  upon  the  state  board 
is  the  apportionment  of  the  tax  upon  mortgages  covering  prop- 
erty within  and  without  the  state.  In  making  this  determination 
the  board  is  to  consider  only  the  value  of  the  tangible  property 
covered  by  the  mortgage,  due  regard  being  given  also  to  prior 
incumbrances  thereon.  In  1914  the  board  condemned  the  prin- 
ciple of  a  registry  tax  and  suggested  the  substitution  of  a  special 
annual  tax  on  all  intangibles  other  than  the  stocks  of  corporations 
and  banks.  The  present  law  was  declared  to  be  an  expedient  for 
exempting  secured  debts  while  it  left  unsecured  debts,  bank 
deposits,  and  other  credits  subject  to  the  high  rates  of  the  general 

owners  in  1890  was  $64,414,986,  and  in  1910,  $7S.997»030-    Cf.  13th  Census,  v,  p. 
166. 

1  Board  of  State  Tax  Commissioners,  Report,  1908,  p.  22. 

2  Ibid.,  pp.  14,  15. 

•  Wisconsin  Tax  Commission,  Report,  1907,  p.  314. 

*  Public  Acts  of  Michigan,  1911,  No.  91, 


TAX  COMMISSIONERS  OF  MICHIGAN  323 

property  tax.   Reasonable  classification  of  property  was  advised, 
though  no  definite  program  was  offered.^ 

In  addition  to  the  mortgage  data,  information  relating  to 
several  other  classes  of  personalty  has  been  collected  and  distrib- 
uted to  the  assessing  officers,  though  with  but  little  better 
results  than  had  attended  the  efforts  to  secure  a  larger  return  of 
mortgages.  Especial  attention  was  given  to  "  vessel  property," 
the  records  of  which  at  the  Michigan  ports  of  entry  were  checked 
each  year  just  previous  to  the  date  of  assessment  and  distributed 
to  the  local  officials.  Similarly,  the  returns  of  personal  property 
made  in  probating  the  estates  of  decedents  and  by  corporations 
claiming  a  domicile  within  the  state  have  been  scrutinized  and 
the  information  so  received  has  been  classified  and  distributed  to 
the  districts  where  such  property  would  be  taxable.  These  reports 
on  the  taxable  property  of  corporations  show  the  amount  of  capi- 
tal stock,  the  value  of  the  real  estate,  and  personal  chattels, 
credits  and  debts,  and  the  assessed  value  of  the  personal  prop- 
erty.2  More  than  6000  of  these  reports  are  prepared  annually. 
The  book  value  of  bank  stock  is  likewise  compiled  and  distributed. 
All  of  this  information  would  be  of  the  highest  value  to  the  earnest 
and  conscientious  assessor  but  it  might  be  neglected  altogether 
by  the  careless  or  indifferent  one.  Previous  to  191 1  the  board  had 
no  power  to  compel  its  use  or  to  force  from  the  assessor  an  expla- 
nation of  his  failure  to  list  the  taxable  property  thus  shown  to 
exist  in  his  district.  The  board's  records  of  personal  property 
assessments  do  not  contain  figures  sufficiently  detailed  to  permit 
one  to  ascertain  the  exact  condition  of  local  personalty  assess- 
ments. It  may  safely  be  said,  however,  that  Michigan  offers  no 
exception  to  the  general  results  of  the  attempt  to  tax  personal 
property  under  the  uniform  rule.  The  Commission  of  Inquiry  of 
191 1  asserted  that  corporate  tangible  personalty  was  grossly 
underassessed  in  many  districts  and  it  concluded  that  the  prob- 
lem demanded  a  more  effective  centralization  of  the  machinery 
of  assessment.^ 

'  Board  of  State  Tax  Commissioners,  Report,  1914,  p.  48. 

*  Ibid.,  1912,  p.  13. 

'  Report  of  the  Commission  of  Inquiry  into  Taxation,  1911,  p.  31. 


324  THE  STATE  TAX  COMMISSION 

Of  the  three  phases  of  supervisory  activity  that  of  correction 
is  most  important.  In  every  state  there  is  undoubtedly  much  to 
be  gained  through  an  extension  of  the  educational  and  construc- 
tive relations  between  central  and  local  officials  and  with  the 
growth  of  the  central  department,  possessing  many  faciHties  for 
the  accumulation  of  valuable  data,  these  forms  of  super\'ision  will 
undoubtedly  expand  in  importance.  But  much  of  the  progress  of 
this  sort  will  be  worthless  unless  there  exists  also  the  power  to 
correct  improper  tendencies,  to  discipHne  local  officials  if  neces- 
sary, and  to  prevent  distracting  local  influences  from  taking 
possession  of  the  assessor. 

The  Michigan  board  of  tax  commissioners  now  has  extensive 
corrective  powers.  It  may  prefer  charges  against  any  dehnquent 
or  negligent  local  official  to  the  governor,  with  whom  the  final 
removal  power  rests.  No  officials  have  actually  been  removed 
under  this  provision  but  in  the  pamphlet  of  19 14  the  board  serves 
fair  warning  that  its  powers  in  this  respect  will  be  vigorously  used 
when  necessary. 

The  powers  of  review  and  reassessment  have  been  the  center  of 
much  of  the  contention  which  has  raged  around  the  board  almost 
from  its  origin.  The  act  of  1899  gave  the  board  authority  to  hear 
complaints  concerning  inadequate  or  fraudulent  assessment  of 
property  and  to  take  such  proceedings  as  would  correct  the  in- 
equalities complained  of,  if  found  to  exist.  Under  this  provision 
the  right  of  review  was  restricted  to  complaints  and  to  the  prop- 
erty complained  of;  but  the  board's  policy  in  acting  on  complaints 
in  the  first  years  of  its  existence  was  so  strenuous  that  in  1905  the 
power  of  review  was  restricted  to  those  complaints  which  were 
made  by  a  taxpayer  resident  in  the  district  in  which  the  assess- 
ment complained  of  had  been  made.  The  protection  aff^orded 
by  this  change  became  the  source  of  numerous  discriminations 
by  local  officials  against  the  property  of  non-residents,  for 
whom  no  relief  was  possible  except  through  tedious  and  expensive 
litigation.^ 

This  obviously  unjust  feature  of  the  power  of  review  was 
retained  until  1909  when  an  amendment  restored  the  right  of 
1  Board  of  State  Tax  Commissioners,  Report,  1906,  pp.  9-1 1. 


TAX  COMMISSIONERS  OF  MICHIGAN  325 

appeal  to  any  taxpayer,  irrespective  of  his  residence  or  the  loca- 
tion of  his  property.  The  ambiguous  language  of  the  amendment 
of  1909  made  possible  the  interpretation  that  the  board  had  been 
empowered  to  initiate  reviews  on  its  own  motion.  The  attorney- 
general  ruled  in  support  of  this  view  and  his  construction  was 
sustained  in  191 1  by  an  amendment  which  gave  the  board  power 
to  initiate  a  review  and  reassessment  of  any  property,  or  of  a 
whole  district. 1  It  was  further  provided  that  after  a  valuation 
had  been  placed  upon  a  property  or  a  district  in  the  course  of  a 
review,  the  local  assessor  could  not  reduce  that  valuation  for 
three  years  except  by  the  written  consent  of  the  state  board. 
This  measure  indicates  a  growing  lack  of  faith  in  the  ability  of 
the  local  assessor  to  withstand  the  assaults  of  special  interests  and 
is  significant  in  its  transfer  of  responsibility  to  the  central  author- 
ity. The  law  was  amended  again  in  1913  and  renewed  emphasis 
was  laid  upon  the  board's  duty  of  enforcing  the  standard  of  cash 
value  assessments.  Practically  unlimited  power  of  review  and 
correction  was  given  and  the  duty  of  initiating  removal  proceed- 
ings against  delinquent  or  negligent  officials  was  again  plainly 
stated. 

These  enlarged  powers  brought  corresponding  energy  and 
aggressiveness  and  the  board  is  again  displaying  the  vigor  and 
zest  that  marked  its  work  previous  to  1905,  before  the  prospect 
of  its  dwindling  powers  had  left  it  apathetic  and  anaemic.  A  very 
energetic,  and  on  the  whole,  successful  campaign  for  state-wide 
elevation  of  assessments  has  been  conducted.  This  was  begun  in 
191 1  in  a  series  of  county  reviews.  Under  the  three-year  rule  the 
commission  was  able  to  hold  these  counties  in  line  while  it  pro- 
ceeded to  review  and  increase  others.  The  iron  counties  were 
first  reviewed  on  the  request  of  the  mine  owners  that  other  prop- 
erty in  those  counties  be  assessed  on  the  same  basis  as  the  mines. 
In  three  years  the  board  had  reviewed  twenty-five  counties  and 
has  brought  most  classes  of  property  therein  substantially  to  full 
cash  value.  In  19 14  a  general  movement  toward  full  value  for 
the  entire  state  was  launched,  the  preliminary  educational  cam- 

*  Board  of  State  Tax  Commissioners,  Report,  1910,  pp.  22-24;  also,  Public  Acls 
of  Michigan,  191 1,  No.  17. 


326  THE  STATE  TAX  COMMISSION 

paign  of  which  has  been  described.  Conferences  were  held  in  thirty 
counties  in  19 14  and  a  force  of  special  examiners  was  sent  out  to 
instruct  and  assist  assessors.  These  examiners  assessed  the  pubHc 
utilities  and  large  private  corporations. 

This  program  has  been  steadily  pushed  forward  and  in  1916 
only  fifteen  counties,  all  small  and  unimportant,  and  that  part  of 
Wa3nie  county  outside  of  Detroit,  remained  to  be  reviewed.  The 
staff  of  special  examiners  has  been  kept  at  work  in  collaboration 
with  the  local  assessors  and  in  collecting  data  with  which  to 
check  the  local  returns.  In  the  counties  reviewed  in  19 14  the 
board's  agents  examined  independently  17  per  cent  of  the  real 
property  and  34  per  cent  of  the  personal  property  as  returned  by 
the  assessors. 

The  first  result  of  this  state-wide  readjustment  of  assessed 
values  has  been  a  very  rapid  increase  in  the  aggregate  valuation. 
The  total  assessment  of  property  since  191 2  is  here  given:  ^ 

Total  Assessment  of  Property  in  Michigan,  as  Equalized,  191 2-1 7 

1912 $1,898,100,000  1915 $2,765,400,000 

1913 2,078,700,000  1916 2,968,200,000 

1914 2,345,700,000  1917 3,625,800,000 

This  is  a  remarkable  result,  involving  as  it  does  the  addition  of 
$1,727,700,000  to  the  tax  duplicate,  or  an  increase  of  almost  100 
per  cent  in  five  years.  It  is  an  indication  of  what  eft'ective  admin- 
istration can  accomplish  when  it  has  the  support  of  public  senti- 
ment in  its  undertaking.  The  people  of  Michigan  were  wilhng  to 
stand  for  full  value  assessment  and  the  board  of  tax  commis- 
sioners received  general  support  in  its  state-wide  review.  This 
alternative  was  a  very  much  better  choice  than  any  percentage 
basis  of  assessment.  The  results  in  Michigan  suggest  what  might 
have  been  accomplished  in  Minnesota  and  Washington  if  a 
similar  state-wide  review  of  assessments  and  increase  to  full  value 
had  been  decided  upon.^ 

Another  result,  and  one  which  will  reveal  the  vital  interest 
which  the  average  taxpayer  has  in  full  value  assessment,  is  the 

*  Board  of  State  Tax  Commissioners,  Report,  1916,  p.  23. 
^  Cf.  below,  chs.  11  and  12. 


TAX  COMMISSIONERS  OF  MICHIGAN  327 

effect  on  tax  rates.  In  ten  counties  not  yet  reviewed  the  tax  rates 
in  1915  ranged  from  $31.78  to  $58.84  per  $1000.  In  the  ten  coun- 
ties having  the  lowest  rates  in  1915  the  range  was  from  $10.95  to 
$14.72  per  $1000.  More  significant  still,  had  the  second  group  of 
ten  counties  not  been  reviewed  by  the  board  of  tax  commis- 
sioners, the  tax  rates  would  have  been  more  than  double  those 
which  were  established  after  the  final  review.^  Similar,  and  even 
more  striking  results  were  obtained  in  the  tax  rates  of  townships 
by  the  intracounty  reviews  conducted  by  the  board. 

The  board  concluded  the  discussion  of  this  topic  in  191 6  by  pre- 
dicting that  on  December  i,  191 7,  all  property  subject  to  the 
general  property  tax  would  be  on  the  assessment  rolls  at  full  cash 
value.2  One  need  not  be  held  lacking  in  appreciation  of  the  note- 
worthy achievements  of  the  Michigan  board  in  the  last  five  years, 
who  expresses  some  doubt  over  this  prophecy.  Even  the  lower 
range  of  county  tax  rates  for  191 5  indicates  clearly  the  fate  of  the 
owner  of  intangible  property  if  this  property  is  listed.  With  those 
as  the  minimum  rates  after  such  a  drastic  review  as  the  greater 
part  of  the  state  has  received,  it  seems  highly  improbable  that 
any  large  part  of  the  intangible  property  of  the  state  has  been 
hsted,  even  by  these  thorough  methods. 

One  of  the  recommendations  proposed  by  the  board  indicates 
that  the  above  criticism  is  admitted.  In  order  to  reach  "  much 
property  now  escaping  taxation  altogether  or  paying  an  incon- 
siderable sum,"  the  board  recommended  the  adoption  of  a  con- 
stitutional amendment  which  would  permit  classification  of 
tangibles  and  the  levy  of  a  tax  on  the  income  from  intangibles.^ 
If  these  changes  are  introduced,  with  the  provisions  for  central 

*  The  ten  counties,  with  the  rates  before  and  after  review  by  the  board,  were: 

Rate  Rate 

County                                  before  review  after  review 

Monroe $22.05  per  $1,000  $10.95  pc  $t,ooo 

Sanilac 30.47    "           "  12.25    "          " 

Huron 17.54    "           "  I2S4    "  " 

Clinton 21.22    "          "  12.69    "  " 

Allegan 22.58    '          "  13.86    "  * 

Gratiot 26.79    "          "  13-98    "  " 

Hillsdale 22.55    "          "  1409    "  " 

St.  Joseph 25.07    "          "  14.16    "  * 

Lenawee 20.31    "          "  14.35    "  * 

Barry 24.40    "           "  14.72    "  " 

Board  of  State  Tax  Conimissioners,  Report,  1916,  p.  25. 
2  Ibid.,  p.  25.  3  jijj^^  pp  23_  3^ 


328  THE  STATE  TAX  COMMISSION 

administration  which  modern  experience  has  proved  desirable, 
there  is  every  reason  to  expect  that  they  will  operate  successfully 
in  Michigan.  The  board  of  state  tax  commissioners  has  recently 
displayed  such  a  commendable  enterprise,  vigor,  and  capacity  in 
its  administration  of  the  tax  system  that  it  can  safely  be  trusted 
with  the  direction  of  these  new  forms  of  taxation. 

Recommendations 

The  duty  of  studying  the  tax  laws  and  recommending  improve- 
ments promises  to  become,  in  all  of  the  states,  one  of  the  most 
fruitful  of  the  functions  exercised  by  the  tax  commission.  The 
popular  mind  works  slowly  at  times,  especially  when  the  inertia 
of  custom,  precedent,  and  ignorance  must  be  overcome.  No 
greater  responsibiHty  has  been  laid  upon  the  leaders  of  tax 
administration  in  any  state  than  the  guidance  of  pubHc  sentiment 
along  the  path  of  genuine  tax  reform,  avoiding  the  dangers  of 
extremes  of  every  sort.  The  recommendations  of  the  Michigan 
board  have  not  always  commanded  the  attention  of  the  state, 
because  of  the  variable  position  in  the  public  confidence  which 
the  board  has  held. 

The  principal  recommendations  in  recent  years  have  been  the 
following:  ^ 

1.  The  classification  of  tangibles  and  a  tax  on  the  income  from  in- 
tangibles. 

2.  Statements  from  all  corporations  doing  business  in  the  state  to  the 
board  of  tax  commissioners. 

3.  Reports  from  banks  showing  all  real  estate  owned  with  assessed 
value  of  same. 

4.  Central  assessment  of  all  local  utilities  extending  through  more  than 
one  district. 

5.  Abolition  of  separate  state  board  of  equalization. 

6.  Limitation  of  tax  rates. 

7.  Substitution  of  the  county  as  the  assessment  unit,  with  a  county  as- 
sessor in  charge,  appointed  by  the  board. 

8.  Statement  of  true  consideration  in  deeds. 

9.  Reappraisal  of  railroad  property  for  purposes  of  taxation. 

10.  Collection  of  the  cost  of  reassessment  and  review  from  the  tax  dis- 
tricts concerned. 

'  Board  of  State  Tax  Commissioners,  Report,  1914,  pp.  47-57;  ibid.,  1916,  pp. 

27-34- 


TAX  COMMISSIONERS  OF  MICHIGAN  329 

APPENDIX  A,  CHAPTER  IX 
Equalized  Valuation  of  Michigan  Railroads,  1899-1915 

Year  Valuation  Year  Valuation 

1899 $186,511,585        1908 $207,305,000 

.  .  * ...  .1  1909 211,764,500 

1902 198,641,000        1910 211,716,000 

1903 222,106,000        1911 211,075,500 

1904 196,795,000        1912 210,884,500 

1905 202,651,000        1913 214,306,500 

1906 207,068,000        1914 .  .  .  .^ 

1907 207,130,500        1915 211,112,000 

'  Figures  not  published. 


CHAPTER  X 

THE  STATE  TAX  COMMISSIONER  OF  WEST  VIRGINIA 

The  tax  system  of  the  new  state  of  West  Virginia  was  modelled 
upon  that  in  force  in  Virginia  before  the  separation  occurred.'  It 
consisted  of  the  general  property  tax,  supplemented  by  a  mass  of 
license  and  other  special  taxes.  The  administration  of  these  taxes 
in  West  Virginia  was  at  first  wholly  local;  some  experiments  in 
central  administration  were  undertaken  at  different  times,  but 
the  first  important  step  in  this  direction  was  taken  in  1882,  when 
the  board  of  public  works  was  placed  in  charge  of  the  state 
equalization  and  of  the  assessment  of  railroads.  Under  the 
system  originally  adopted,  real  estate  was  reappraised  at  ir- 
regular intervals  by  special  assessment  commissioners  appointed 
for  each  tax  district  by  the  boards  of  county  supervisors. ^ 
There  was  no  state  equahzation  of  these  reappraisals  until  1875, 
when  the  governor  was  authorized  to  appoint  a  board  of  three 
commissioners  for  the  purpose.^  A  plan  of  self-assessment  of  rail- 
roads, under  central  direction,  was  introduced  by  the  code  of 
1868,^  but  the  provision  for  central  correction  of  the  returns  was 
exceedingly  awkward  and  inefficient.  The  administrative 
changes  of  1882,  together  with  the  revision  of  the  law  for  railroad 
taxation,  oft'ered  in  theory  the  opportunity  for  a  considerable 
improvement  in  tax  administration.  But  the  board  of  public 
works  was  an  ex  officio  body  consisting  of  the  elective  state 
officers;  and  under  its  administration  very  little  gain  was  made.^ 

1  Cf.  Laws  of  West  Virginia,  1863,  ch.  118,  and  Code  of  Virginia,  i860,  Tit.  12, 

ch.  35- 

"^  Laws  of  West  Virginia,  1866,  ch.  51.  ^  Ibid.,  1875,  ch.  54. 

••  Code  of  West  Virginia,  1868,  ch.  29,  §  67. 

^  E.  g.,  the  special  commission  of  1902  said:  "  Nothing  has  been  more  produc- 
tive of  dissatisfaction  or  of  useless  expense  than  the  several  reassessments  of  real 
estate  .  .  .  with  the  attendant  attempts  to  get  relief  from  them  by  means  of  state 
boards  of  equalization."  Final  Report  of  the  Commission  to  revise  the  Tax  Laws, 
1902,  p.  8. 

330 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  33 1 

It  was  a  foregone  conclusion  that  the  locally  administered 
general  property  tax  would  cause  trouble;  but  it  is  rather  sur- 
prising to  find  a  special  commission  of  investigation  appearing  as 
early  as  1884.'  The  report  of  this  commission  has  become  widely 
known  because  of  its  emphasis  upon  the  conditions  of  personal 
property  assessments,  and  its  conclusions  are  evidence  of  the 
insight  of  its  members  into  the  real  state  of  affairs.  The  pre- 
liminary report  proposed  that  intangible  property  be  exempted 
if  a  full  and  complete  assessment  were  not  possible.  The  com- 
mission believed,  however,  that  a  full  assessment  of  such  property 
was  possible  if  the  assessor  could  be  held  strictly  to  his  task,  and 
the  logical  conclusion  from  this  view  —  central  supervision  of 
local  assessments  - —  was  unhesitatingly  recommended. 

No  action  was  taken  upon  these  proposals,  which  were  exceed- 
ingly advanced  for  the  time,  and  eighteen  years  elapsed  before  the 
tax  situation  was  again  investigated.  In  1902  a  second  special  tax 
commission,  appointed  to  revise  the  tax  laws,  reported  in  favor 
of  central  supervision  ^  and  upon  the  basis  of  its  recommendations 
the  legislature  in  1904  adopted  a  number  of  changes  in  the  tax 
laws,  of  which  the  more  important  were  the  following :  ^ 

1.  Creation  of  the  office  of  state  tax  commissioner; 

2.  Assessment  of  railroad,  telegraph,  telephone  and  pipe  Hne 

companies  by  the  board  of  public  works ; 

3.  A  series  of  changes  which  were  to  become  effective  on 

January  i,  1909.     These  were: 

{a)  Annual  assessment  of  all  property,  including  real 
estate,  at  its  true  and  actual  value; 

[h)  Local  election  of  a  county  assessor  in  each  county, 
for  a  four-year  term ; 

(c)  Review  of  assessments  by  the  assessor  and  his  assist- 
ants, the  number  of  which  was  to  be  determined 
by  the  population  of  the  several  counties. 

*  Reviewed  by  Chapman,  op.  cil.,  pp.  64-66.  Final  report  signed  by  only  one 
member. 

*  Report  of  the  Commission  to  revise  the  Tax  Laws,  1902,  p.  49. 
'  Code  of  West  Virginia,  ch.  29. 


332  THE  STATE  TAX  COMMISSION 

This  new  legislation  was  not  carefully  thought  out,  and  at 
almost  every  session  until  1909  the  chapter  on  taxation  was 
rewritten,  though  not  all  of  the  defects  were  removed  in  the  suc- 
cessive revisions.  In  1905  express  and  private  car  companies,  and 
railroad  bridge  companies  charging  separate  tolls,  were  added  to 
the  list  of  corporations  centrally  assessed. ^  In  1907  the  board  of 
public  works  was  required  to  appoint  a  board  of  three  persons  in 
each  county  who  were  to  act  instead  of  the  boards  of  assessors 
as  a  county  board  of  review.^  These  appointees  were  to  serve  for 
six  years  unless  removed  by  the  board.  On  the  other  hand,  no 
state  equalization  of  the  annual  assessments  was  provided.  The 
board  of  public  works,  an  ex  officio  body,  was  made  the  real  ad- 
ministrative head  of  the  tax  system,  in  the  face  of  the  experience 
of  the  preceding  twenty  years.  The  new  tax  commissioner  was  rel- 
egated to  the  position  of  expert  agent  who  was  to  assist  in  the  col- 
lection of  data  for  the  central  assessment  and  who  might,  at  the 
invitation  of  the  board  or  the  governor,  attend  the  meetings  of  the 
former  and  assist  in  its  dehberations  upon  assessment  and  revenue 
matters.^  The  only  original  jurisdiction  of  significance  that  was 
given  him  was  the  supervision  of  local  assessments  and  here,  as 
will  be  seen,  his  powers  were  inadequate  to  secure  material 
improvement.^  In  order  to  bridge  the  interim  to  1909,  a  final 
reassessment  of  real  estate  was  ordered  for  1905,  under  the  direc- 
tion of  the  tax  commissioner.^  The  results  of  this  reappraisal  will 
be  discussed  below.^ 

The  Administration  of  Corporation  Taxes 

The  first  law  for  the  taxation  of  railroads,  in  1863,  simply 
required  the  railroads  to  apportion  all  of  their  property  in  the 
state,  including  rolling  stock  and  moneys  and  credits,  to  the 
several  counties  where  it  was  to  be  assessed  by  the  county  asses- 
sors.'' In  1868  these  returns  were  to  be  made  to  the  state  auditor, 

^  Laws  of  West  Virginia,  1905,  ch.  35. 

^  Ibid.,  1907,  ch.  80. 

'  Ibid.,  1904,  ch.  4.    Cf.  above,  p.  57,  for  the  New  York  plan  of  1859. 

*  Cf.  below,  pp.  338-340. 

^  Laws  of  West  Virginia,  1904,  ch.  15. 

*  Cf.  below,  pp.  341,  342.  ■^  Laws  of  West  Virginia,  1863,  ch.  118. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  333 

who  was  to  lay  them  before  the  board  of  public  works. ^  If  this 
body  were  satisfied  with  the  self-imposed  assessment  it  ordered 
the  certification  to  the  tax  districts;  if  not,  it  was  to  create  a 
special  commission  consisting  of  one  person  from  each  congres- 
sional district,  which  was  to  correct  the  assessment.  No  one  was 
to  be  appointed  from  a  county  containing  a  railroad.  These 
commissioners  were  to  be  paid  $3.00  per  day  and  five  cents  per 
mile  for  expenses.  Their  decision  was  final.  In  1882  the  board  of 
public  works  was  put  in  complete  charge  of  the  assessment  and  a 
much  more  elaborate  return  was  required  of  the  railroads.*  Under 
proper  administration  this  new  law  would  have  permitted  a  fairly 
effective  ad  valorem  assessment,  but  the  board  failed  to  use  its 
opportunity  and  continued  to  make  a  piecemeal  valuation  of  the 
property  in  each  county.  The  tax  commissioner  stated  in  1906 
that  railroads,  like  all  other  property,  had  always  been  assessed 
at  much  less  than  full  value.^ 

Under  the  law  of  1904  the  corporations  subject  to  the  state 
assessment  were  to  make  certain  returns  to  the  tax  commissioner 
upon  blanks  provided  by  him.  These  statements  were  to  include 
the  usual  information  regarding  the  history  and  general  organiza- 
tion of  the  corporation,  and  a  detailed  list  of  the  physical  prop- 
erty owned  and  used  in  the  business.  The  forms  which  the  tax 
commissioner  has  developed  are  quite  satisfactory  but  the  law  is 
in  need  of  a  careful  revision.  The  principal  defects  of  the  latter 
have  always  been  the  excessive  emphasis  upon  the  company's 
distribution  of  its  property  by  counties  and  the  requirement  that 
the  board  shall  "  assess  and  fix  the  true  and  actual  value  of  all 
property  (of  each  corporation)  in  each  county  ...  in  which  any 
property  to  be  assessed  is."  While  the  probable  intent  of  this 
provision  was  simply  to  secure  a  distribution  of  the  final  valua- 
tion to  the  counties  on  some  equitable  basis,  the  railroads  con- 
tended that  the  intention  was  to  perpetuate  the  old  piecemeal 
valuation.  This  view  was  not  sustained  by  the  courts  but  the 
railroad  argument  is  evidence  of  the  earlier  methods  of  the  board 
of  public  works. 

»  Code  of  West  Virginia,  1868,  ch.  29,  §  67.  »  Ihid.,  1882,  ch.  161. 

'  State  Tax  Commissioner  of  West  Virginia,  Report,  1906,  p.  29. 


334  THE  STATE  TAX  COMMISSION 

Though  this  board  is  nominally  in  charge  of  the  corporation 
assessments  and  certifies  the  official  assessments  to  the  counties, 
the  actual  task  of  valuation  has  been  performed  by  the  tax  com- 
missioner in  so  far  as  any  material  revision  or  correction  of  the 
returns  has  been  undertaken.  The  methods  followed  by  the  tax 
commissioner  have  been  a  combination  of  the  cost  of  reproduc- 
tion, the  capitalization  of  earnings,  and  the  stock  and  bond  mar- 
ket values;  and  in  addition,  the  consideration  of  "  every  element 
and  condition  which  added  to  or  detracted  from  the  supposed 
value."  ^  There  has  been  no  effort  at  a  physical  appraisal  of  cor- 
porate property  and  all  calculations  of  the  cost  of  the  existing 
properties  have  necessarily  been  based  upon  the  statements  of  the 
companies  themselves.  Obviously,  reliable  estimates  of  cost 
could  hardly  be  made  on  the  basis  of  figures  from  this  source, 
unsupported  by  independent  investigations.  The  tendency  in 
recent  years  has  been  to  place  increasing  reliance  upon  the 
capitalization  of  net  earnings  at  6  per  cent,  and  in  the  absence  of 
net  earnings,  to  use  the  stock  and  bond  valuation  as  a  criterion  of 
the  investment  in  the  property.^ 

The  principle  of  the  unit  valuation  was  immediately  contested 
by  the  railroads.  By  common  consent  the  appeal  of  the  Balti- 
more and  Ohio  Railroad  Company  was  made  a  test  case,  and 
hearings  were  arranged  before  certain  of  the  various  county  courts 
before  which  the  company  was  entitled  to  appeal.^  The  unit  rule 
and  the  results  obtained  from  it  were  unanimously  sustained."* 
This  company  had  valued  its  property  in  the  several  counties 
through  which  it  operated  at  $17,081,273,  but  the  assessed  valua- 
tion of  the  Baltimore  and  Ohio  Railroad  Company  in  West 
Virginia  was  fixed  at  $79,981,749.  The  data  upon  which  this 
advance  was  made  are  not  available  except  as  they  are  described 
in  the  general  language  of  the  first  report,  above  referred  to. 
The  net  earnings  assigned  to  West  Virginia  for  1906  were  $5,494,- 

^  State  Tax  Commissioner  of  West  Virginia,  Report,  1906,  p.  29. 

^  Interview  with  ex-Commissioner  T.  C.  Townsend,  April,  191 1. 

'  The  corporation  may  appeal  to  the  circuit  court  of  each  county  against  the 
assessment  of  its  property  in  that  county. 

*  The  briefs  and  arguments  in  this  case  are  published  as  Circuit  Court  Reports,  i, 
1907. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  335 

094.  On  a  6  per  cent  basis  this  would  give  a  valuation  of  more 
than  $90,000,000,  and  in  view  of  this  fact  the  judges  were  im- 
pressed with  the  reasonableness  of  the  tax  commissioner's  valua- 
tion. The  officials  of  the  company  attempted  to  rebut  this 
conclusion  by  emphasizing  the  misleading  character  of  the 
statement  of  net  earnings  for  West  Virginia.  One  company 
official,  in  his  testimony,  said:  "  The  actual  figures  lie  somewhere 
between  three  and  a  half  and  four  millions,  net,  probably  four 
millions."  This  leads  to  the  suspicion  that  the  company  was 
padding  the  West  Virginia  statement  of  net  earnings  in  order  to 
reduce  the  showing  in  other  states,  a  practice  in  which  it  would 
have  been  encouraged  by  the  easy-going  methods  of  the  board  of 
public  works.  The  judges  exposed  unmercifully  the  incompati- 
bihty  of  a  property  worth  less  than  $18,000,000  earning  between 
four  and  five  milHons  a  year,  and  they  were  able  to  excuse  the 
officials  of  the  company  from  the  charge  of  insincerity  only  by 
crediting  them  with  a  belief  that  the  taxable  value  and  the  selling 
or  market  value  were  not  the  same.  This  was  a  very  lame  excuse, 
but  it  served  as  a  face-saving  expedient.  The  courts  did  not  hold 
that  these  two  values  were  necessarily  identical,  but  they  refused 
to  accept  any  such  discrepancy  as  the  railroads  apparently 
wished  to  establish. 

Although  the  appUcation  of  the  ad  valorem  method  of  corpo- 
rate assessment  in  West  Virginia  is  somewhat  defective,  as  has 
been  seen,  it  has  resulted  under  more  competent  administration 
in  extensive  increases  of  corporation  valuations,  as  is  shown  by 
the  figures^  in  the  table  on  the  next  page. 

The  principal  improvement  in  the  first  years  of  central  adminis- 
tration was  the  immense  increase  in  railroad  assessments,  due  to 
the  revolution  in  the  methods  used.  In  later  years  the  greatest 
advance  has  been  in  the  assessment  of  pipe  line  companies.  No 
attempt  has  been  made  to  take  cognizance  of  varying  standards 

1  From  the  reports  of  the  Tax  Commissioner.  The  "  Water  and  Light  Com- 
panies "  do  not  include  those  operated  in  connection  with  gas  companies.  These 
figures  were  combined  in  1904  and  1906.  The  totals  include  toll  bridge  companies 
also.  The  omission  of  an  important  table  in  the  report  for  1916  makes  it  inconven- 
ient to  give  more  recent  figures.    Cf.  Report,  1916,  pp.  188  fT. 


336  THE  STATE  TAX  COMMISSION 

Comparative  Assessment  of  Corporations,  1904-13  (millions) 

Corporation  1904  1906                         1913 

Steam  Railroads $28.8  $166.4                $186.0 

Street  Railroads 1.2  6.6                    13.0 

Oil  and  Gas  Pipe  Line  Cos.  \  f    100.2 

Water  and  Light  Cos /  ^'^  ^^'^  I       4-4 

Telephone,  Telegraph  Cos.           .9  3.0                       5.3 

Express  Cos .012  .170                    .616 

Private  Car  Line  Cos .080  .662                    .652 

Totals 40.9  209.1  312. 1 

of  local  valuation  in  different  parts  of  the  state  and  to  equalize 
the  corporate  assessments  to  these  standards,  as  is  done  in  some 
other  states  in  which  the  assessment  is  made  by  a  state  board  and 
the  tax  is  laid  by  the  local  authorities.  The  assessed  valuation  of 
general  property  has  been  considerably  increased  since  1906  but 
there  is  no  certainty  that  the  advance  has  been  uniform  over  the 
state;  neither  is  there  any  means  of  knowing  whether  any  class 
of  property  has  been  assessed  at  full  value.  The  corporations 
have  deserved  a  higher  assessment;  but  they  are  also  entitled  to 
a  fair  equalization  to  the  same  basis  as  that  used  locally  for  other 
property. 

A  further  defect  in  the  tax  laws  relating  to  corporations  is  the 
provision  that  appeals  against  the  central  assessment  may  be 
carried  to  the  circuit  court  of  any  county  in  which  a  part  of  the 
corporate  property  is  located,  for  a  review  of  the  assessment  in 
that  county.  The  courts  are  required  to  give  precedence  to  such 
appeals  and  are  authorized  to  fix  the  true  value  of  the  property 
in  that  county,  according  to  the  facts  proved.  This  method  of 
review  is  very  awkward  and  may  actually  prove  very  detrimental 
to  the  work  of  the  board  of  review.  The  whole  purpose  of  central 
corporate  assessment  is  to  secure  more  accurate  results  than  were 
possible  in  a  piecemeal  assessment  by  local  officials.  The  vast 
improvement  in  these  assessments  in  West  Virginia  has  been 
accomplished  through  the  use  of  the  unit  rule,  or  the  valuation 
of  the  property  as  a  whole,  and  the  apportionment  of  a  fraction 
of  that  total  to  the  state  on  the  mileage  basis.  But  the  principle 
of  judicial  review  of  this  action  strikes  at  the  very  foundation  of 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  337 

its  success.  Especially  is  this  true  when  the  court  is  a  county 
court,  exercising  jurisdiction  only  over  the  valuation  within  that 
county,  for  it  is  quite  possible  that  a  court  not  in  sympathy  with 
the  methods  of  the  state  assessment  might  make  a  revaluation  of 
the  property  in  that  county  on  the  theory  of  corporate  assessment 
which  prevailed  a  generation  ago.  The  favorable  decisions  in  the 
Baltimore  and  Ohio  case  form  a  valuable  precedent  which  will 
offer  some  resistance  to  the  destructive  effects  of  such  a  system 
of  appeal ;  but  they  do  nothing  to  relieve  the  awkwardness  of  the 
system  and  little  to  lessen  the  possible  burden  involved  in  defend- 
ing the  board's  action  in  every  county.  The  proper  remedy,  of 
course,  would  be  to  authorize  the  board  to  hear  appeals  from 
its  own  assessments,  with  final  jurisdiction  on  all  questions  of 
fact.  Ultimate  resort  to  the  courts  in  case  of  actual  injury  would 
still  be  open,  while  the  work  of  the  board  would  be  protected 
against  arbitrary  and  unskilled  interference  by  unsympathetic  or 
unintelligent  court  reviews.^ 

Because  of  the  great  value  of  the  coal,  oil,  and  gas  resources  of 
the  state  the  problem  of  a  proper  method  of  taxing  these  com- 
panies has  been  one  of  the  more  pressing  questions  of  tax  reform 
in  West  Virginia.  In  1905  the  attempt  was  made  to  reach  the 
enormous  intangible  values  of  the  oil,  gas  and  mining  companies 
embodied  in  the  privileges  represented  by  leases  of  productive 
properties,  but  the  failure  to  centralize  more  effectively  the  con- 
trol of  this  assessment  of  leaseholds,  or  "  chattels  real,"  largely 
defeated  this  effort.  The  assistant  tax  commissioner,  writing  in 
1908,  said:  2  ''Instead  of  adding  two  hundred  millions  to  the 
rolls,  it  was  the  means  of  placing  on  the  books  property  to  the 
amount  of  approximately  fifty  millions  only."  The  local  asses- 
sors were  either  incapable  of  valuing  the  "  chattels  real  "  at 
their  true  value,  or  else  they  were  unwilling  to  oppose  the  strong 

^  This  transfer  of  appellate  jurisdiction  has  been  made,  for  instance,  in  Indiana, 
Wisconsin,  Ohio,  Kansas,  and  other  states.  Cf.  below,  p.  342,  for  the  effect  of  the 
court  review  of  the  real  estate  appraisal  of  1905.  Cf.  State  Tax  Commissioner  of 
West  Virginia,  Report,  1908,  pp.  23-28,  for  a  list  of  the  important  cases  reviewed  by 
the  county  courts  on  questions  of  fact. 

*  T.  C.  Townsend,  "  The  Taxation  of  Coal,  Oil,  and  Gas,"  in  Proceedings  of  the 
National  Tax  Conference,  1908,  pp.  395-410. 


338  THE  STATE  TAX  COMMISSION 

influence  of  the  operators  by  doing  their  duty.  Both  conditions 
were  operative,  without  question.  The  tax  commissioners  have 
steadily  recommended  a  production  tax  on  coal,  oil  and  gas,  to  be 
levied  for  state  purposes,  with  rates  graded  according  to  object, 
and  to  quality  of  output  in  the  case  of  coal.'  There  is  no  doubt 
that  the  present  method  of  taxing  these  forms  of  wealth  is  utterly 
inadequate. 

Supervision  of  Local  Assessments 

It  was  the  apparent  intention  of  the  legislature  to  give  the  tax 
commissioner  broad  and  extensive  supervisory  powers  over  the 
tax  system,  powers  which  were  to  extend  not  only  to  the  assessors 
but  to  all  other  officials  charged  with  any  responsibihty  for  the 
assessment  or  collection  of  taxes.^  As  a  matter  of  fact,  however, 
but  little  effective  supervision  has  been  exercised  over  the  process 
of  local  assessment.  The  principal  reasons  for  this  condition 
seem  to  have  been  the  following: 

I.  The  one-man  commission.  The  magnitude  of  the  tasks  in 
addition  to  supervision  which  have  been  imposed  upon  the  tax 
department  has  been  so  great  as  to  prevent  the  most  efficient 
administration  of  any  of  the  duties  of  the  office.  The  problems  of 
supervision  in  West  Virginia  have  been  pushed  to  the  background 
by  the  greater  apparent  need  of  reforms  in  other  parts  of  the  tax 

1  Cf .  Reports  of  the  State  Tax  Commissioners,  passim. 

2  The  supervisory  powers  are  conveyed  in  the  following  section:  "  Sec.  2.  It 
shall  be  the  duty  of  the  state  tax  commissioner  to  see  that  the  laws  concerning 
the  assessment  and  collection  of  all  taxes  and  levies  .  .  .  are  faithfully  enforced. 
To  this  end  he  shall  advise  the  auditor  in  the  preparation  of  aU  proper  forms  and 
books  for  the  guidance  of  assessors.  ...  He  shall  from  time  to  time  visit  the 
several  counties  and  municipal  corporations  of  the  state,  shall  inspect  the  work  of 
the  several  assessors,  justices,  prosecuting  attorneys,  clerks  of  court,  sheriffs,  con- 
stables, and  collecting  officers  among  whom  are  included  commissioners  of  school 
lands,  and  shall  confer  with  them  respecting  such  work  for  the  future.  In  such  con- 
ference, or  by  writing  or  otherwise,  he  may  inquire  into  the  proceedings  of  any  such 
ofl&cer,  make  to  him  such  suggestion  respecting  the  discharge  of  his  duty  as  may 
seem  proper,  and  give  such  information  and  require  such  action  as  will  tend  to  pro- 
duce full  and  just  assessments  throughout  the  state.  ...  In  case  of  the  failure 
of  any  assessing  or  collecting  ofl&cer  in  the  discharge  of  any  duty  .  .  .  the  said  tax 
commissioner  shall  proceed  to  enforce  such  penalty  as  may  be  provided  by  law, 
including  in  any  proper  case  the  removal  of  such  oCTicer,  and  to  that  end  he  is 
authorized  to  appear  before  any  court  or  tribunal  having  jurisdiction.  ..." 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  339 

system.  For  instance,  the  inheritance  tax  had  become  a  com- 
plete farce,  the  Hcense  taxes  were  in  extreme  need  of  more  effec- 
tive administration,  and  the  vicious  practices  of  corporation 
assessment  were  greatly  in  need  of  correction.  Attention  to  these 
more  glaring  defects  has  absorbed  the  time  and  energy  of  the 
single  commissioner.  In  recent  years  the  supervision  and  inspec- 
tion of  public  offices,  and  the  enforcement  of  the  prohibition  laws 
have  been  added  to  this  burden.^ 

2.  Insufficient  appropriations.  —  The  first  difiiculty  might 
have  been  overcome,  but  for  the  second.  The  money  appropriated 
has  been  used  in  building  up  the  other  parts  of  the  organization 
to  the  neglect  of  the  supervision  of  local  assessments.  This  is 
indicated  by  the  following  statement,  made  in  1906:  ^ 

The  appropriations  have  been  grossly  inadequate  for  the  purpose  of  prop- 
erly carrying  on  the  work  of  the  office,  and  the  work  has  been  limited  to  a 
large  extent  by  a  lack  of  funds.  .  .  .  Field  agents  necessary  to  visit  the 
assessors  throughout  the  state,  to  consult  with  them  and  the  other  revenue 
officials  of  the  state,  to  properly  procure  the  equal  and  just  assessment  of  all 
property,  could  not  be  employed  on  account  of  a  lack  of  funds. 

It  will  be  found,  however,  that  the  commissioner  did  build  up  a 
force  of  inspectors  who  scoured  the  state  to  prevent  infractions 
of  the  license  laws.  The  fact  is,  there  was  not  money  enough  to 
provide  both  services  and  the  Hcense  inspection  was  preferred. 
One  reason  for  this  preference  is  seen  in  the  next  reason  for  the 
failure  of  supervision. 

3.  Separation  of  the  sources  of  state  and  local  revenues.  —  This 
separation  caused  the  assessment  of  property  to  be  regarded 
purely  as  a  local  matter  and  interference  has  been  discouraged  by 
public  opinion.  The  policy  of  the  separation  of  sources  of  revenue 
was  worked  out  in  1905  by  aboHshing  the  state  levy  for  state 
purposes  after  1906,  leaving  only  a  small  levy  for  state  school 
purposes.^  In  191 2  this  levy  was  only  one  cent  on  the  hundred 
dollars  of  valuation.  In  1913  a  state  levy  of  six  cents  was  neces- 
sary on  account  of  the  loss  of  revenue  from  liquor  licenses.    The 

1  The  Tax  Commissioner  complained  of  the  increase  of  clerical  work  in  Report, 

1914,  p.  S- 

*  Ibid.,  1906,  p.  II. 

'  Lau-s  of  West  Virginia,  1905,  ch.  36. 


340  TEE  STATE  TAX  COMMISSION 

amount  collected  for  state  purposes  under  this  levy  was  $745,964.^ 
Both  the  state  tax  rate  and  the  revenue  obtained  for  state  pur- 
poses have  increased  rapidly  in  recent  years.  The  state  tax  rate 
was  ten  cents  in  19 14  and  fourteen  cents  in  191 5,  and  the  yield 
in  the  latter  year  was  $1 ,801 ,000.2  ^jjis  rapid  growth  of  the  state 
tax  increases  the  significance  of  the  tax  commissioner's  super- 
visory functions. 

4.  Inadequate  powers  of  enforcement.  —  The  whole  point  of  the 
section  quoted  above  is  thrown  away  by  restricting  the  tax  com- 
missioner to  the  remedies  already  provided  by  law,  since  no  ade- 
quate remedies  for  these  particular  administrative  difficulties 
have  been  thus  provided.^  The  only  recourse  of  the  tax  com- 
missioner, in  case  of  refusal  or  neglect  of  an  officer  to  perform  his 
duty,  is  to  institute  suit  for  removal  or  for  the  imposition  of  the 
statutory  penalty.  The  difficulty  of  proving  deHberate  or  willful 
intent  has  been  so  great  that  practically  no  such  suits  have  ever 
been  brought.  The  various  tax  commissioners  have  construed  this 
power  as  advisory  only,  since  they  have  been  unable  to  enforce 
their  suggestions  even  when  such  enforcement  was  essential  to 
the  best  operation  of  the  tax  system.  Experience  is  proving  that 
the  removal  of  officers  and  the  reassessment  of  property  are  the 
only  effective  means  of  securing  local  observation  of  the  standards 
established  by  the  law.* 

Although  effective  supervision  over  the  local  assessment  has 
not  materialized,  it  is  not  to  be  inferred  that  the  tax  commissioner 
has  done  nothing  in  the  direction  of  the  local  officials.  The  more 
common  agencies  for  local  advisory  supervision  have  been  used, 
such  as  the  pubUcation  of  printed  instructions,  the  occasional 
assemblage  of  groups  of  assessors  in  conference,  and  visits  to  the 
counties.  On  account  of  the  overworked  condition  of  the  depart- 
ment, however,  these  activities  have  probably  not  attained  the 
maximum  efficiency  possible  even  with  the  limited  powers.    In 

'  State  Tax  Commissioner  of  West  Virginia,  Report,  1914,  pp.  243,  246. 

2  Rid.,  1916,  pp.  314-316. 

'  Cf.  above,  p.  338,  note  2.  This  provision  of  the  form,  without  the  real  sub- 
stance of  authority,  is  a  favorite  device  of  legislatures. 

*  In  19 16  the  tax  commissioner  recommended  the  central  appointment  of  the 
county  assessor  and  the  county  boards  of  review.     Report,  1916,  pp.  13,  14. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  341 

March  1914,  the  first  state  conference  of  the  assessors  was  held. 
The  commissioner  recommends  that  this  be  made  an  annual 
affair,  with  allowance  of  travelling  expenses  to  the  assessors.^ 
The  only  attempt  to  use  agents  in  the  collection  of  data  which 
would  shed  light  upon  property  values  over  the  state  has  been  in 
connection  with  coal  mining  properties.  The  coal  property 
assessments  were  materially  increased  through  the  use  of  the 
information  collected  by  the  special  agents,  but  this  class  of 
property  is  still  assessed  far  below  true  value. 

The  creation  of  a  new  tax  department,  the  assessment  of  prop- 
erty at  full  cash  value,  and  the  adoption  of  a  county  assessor 
system  have  together,  however,  resulted  in  some  significant  gains 
in  the  assessment  of  property.  An  examination  of  these  results 
will  throw  further  Hght  upon  the  weakness  of  the  tax  commis- 
sioner's position  as  supervisory  head  of  the  tax  system  under  the 
existing  legal  limitations. 

The  first  opportunity  of  the  new  tax  department  came  in  1905, 
in  the  reappraisal  of  real  estate.  This  was  in  reahty  a  state  assess- 
ment since  the  appraisers  were  appointed  by  the  tax  commis- 
sioner. The  actual  assessment  produced  significant  gains,  as  the 
figures  below  indicate  ^  but  the  commissioner  admitted  that  the 
results  were  quite  defective,  especially  with  regard  to  mineral  and 
timber  lands.^  The  intracounty  results  of  this  reappraisal  were 
reviewed  by  the  county  courts,  to  which  any  aggrieved  taxpayer 
had  the  right  of  appeal.  The  board  of  public  works  made  the 
equalization  for  the  state.   The  aggregate  increases  of  the  latter 

1  State  Tax  Commissioner  of  West  Virginia,  Report,  1914,  p.  10. 

*  Total  Assessed  Valuation  of  Lands  and  Buildings  since  1903  (millions) 

Year                                             Lands  Lots  Buildings  Total 

1903 $91.0  $20.4  $53-2  $164.5 

1904 91.0                   20.3  56.8  168.1 

1905 90.6                   20.6  S9-6  170.9 

1906 270.0                   82.5  126.1  478.7 

1907 270.7                   87.9  132.5  491.2 

1908 255.4                   83.2  137.8  489-8 

1909 324-0                   98-3  156.7  S79.0 

1910 330.0  103.8  165.2  600.0 

1911 408.8  210.4  --•  619.2 

1912 412.6  221.2  ...  633.8 

1913 -  -•  •-•  <568.S 

1914 ...  ...  683  I 

1915 •  •-  -  -  •  691.4 

From  the  biennial  reports.    The  separate  figures  are  not  given  in  the  later  reports. 

*  State  Tax  Commissioner  of  West  Virginia,  Report,  1908,  p.  11. 


342  THE  STATE  TAX  COMMISSION 

do  not  quite  ofifset  the  net  reductions  allowed  by  the  former,  and 
it  is  very  doubtful  if  the  net  result  of  the  two  sets  of  changes  were 
in  the  direction  of  greater  equality.  The  county  courts  made 
nine  increases,  aggregating  $4,384,484,  and  forty-five  decreases 
(all  other  counties),  aggregating  $58,022,613,  or  a  net  decrease  of 
$54,708,129.   The  most  notorious  cases  were  the  following:  ^ 

Changes  in  Foxtk  Counties  by  the  County  Courts  and  the  Board  of 

Public  Works 

Decrease  by  Increase  by 

County  County  Court  Board  of  Public  Works 

McDowell $20,557,701  $6,013,947 

Fayette 10,676,743  6,503,725 

Mercer 5,832,753  3,474,744 

Wyoming 5,438,962  i,5i7,55i 

Totals 42,506,759  17,509,967 

These  counties  lead  in  the  production  of  mineral  and  timber 
products  and  the  local  reductions  were  in  all  probability  in  favor 
of  these  interests.  The  board  allowed  only  two  decreases,  with 
a  total  net  increase  for  the  state  of  $52,493,922.  It  is  clear,  there- 
fore, that  a  considerable  portion  of  the  additional  $25,000,000 
which  the  courts  cut  from  these  four  counties  was  added,  in  the 
state  equalization,  to  the  other  counties  of  the  state,  a  process 
which  did  not  promote  equaHty  of  assessment  among  the  counties. 

The  next  marked  improvement  in  the  assessment  of  real  estate 
occurred  in  1909,  with  the  introduction  of  the  new  local  machinery 
of  assessment  and  review.  The  increase  of  $68,800,000  in  lands 
was  borne  chiefly  by  the  mineral  and  timber  lands,  the  values  of 
which  had  been  under  investigation  by  the  tax  commissioner. 
This  gain  is  suggestive  of  the  general  improvement  which  might 
have  been  effected  by  a  wider  and  more  thorough  application  of 
his  methods.  Indeed,  those  methods  were  much  more  appHcable 
to  the  other  classes  of  real  estate  than  they  were  to  the  mineral 
and  timber  lands.  The  attempt  to  assess  the  extractive  indus- 
tries by  guessing  at  the  acreage  value  of  lands  underlaid  with 
mineral  or  metal  deposits  will  inevitably  fail. 

On  the  other  hand,  better  gains  have  been  made  in  the  assess- 
ment of  personal  property  than  in  some  of  the  states  with  more 
*  Compiled  from  the  biennial  Reports  of  the  Auditor  of  State. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  343 

effectively  centralized  administration.  In  view  of  the  tax  com- 
missioner's limited  supervisory  powers  the  results  are  on  the 
whole  very  creditable.  A  detailed  analysis  of  the  figures  is  given 
below.  ^ 

The  first  thing  to  be  noticed  in  this  table  is  the  unusual  increase 
in  the  total  assessment  of  intangible  property.  More  than  half  of 
this  increase  has  been  due  to  the  steady  growth  in  the  assessment 
of  moneys,  which  has  risen  from  $13,300,000  in  1905  to  $51,400,- 
000  in  1914,  or  286.4  per  cent.  The  assessment  of  the  other  classes 
of  intangibles  has  been  more  or  less  erratic,  though  in  the  case  of 
bank  stocks  the  data  are  readily  accessible  for  a  fairly  complete 
and  accurate  valuation.  The  exact  distinction  between  groups  i 
and  2  and  group  4  of  the  intangibles  is  not  clear.  The  multiph- 
cation  of  items  of  personal  property  is  a  favorite  expedient  in  the 
last  stages  of  the  general  property  tax,  but  in  this  case  the  addi- 
tional group  appears  to  add  to  the  confusion.  The  suspiciously 
large  amount,  returned  as  miscellaneous  moneys  and  credits 
(group  4),  suggests  that  many  persons  have  been  making  a  nomi- 
nal return  here  instead  of  a  full  return  in  the  proper  place.  The 
very  unstable  character  of  the  returns  of  credits  and  investments 
strengthens  this  suspicion.  Group  3,  moneys  and  credits  in  liti- 
gation, illustrates  both  the  tendency  to  minute  subdivision  of  the 
personal  property  schedule  and  the  inequality  of  the  uniform  rule. 
The  amount  returned  will  vary,  naturally,  with  the  volume  of 
property  in  litigation;  but  there  is  no  escape  and  this  property 
will  be  assessed  in  full  amount  and  on  a  higher  basis  of  value  than 
similar  possessions  in  the  hands  of  those  whose  business  affairs 
are  not  a  matter  of  public  record.  The  uniform  rule  operates 
here,  as  at  other  points,  as  a  penalty  on  the  helpless  and  the 
unfortunate. 

The  marked  success  which  has  been  achieved  in  the  assessment 
of  intangibles  is  doubtless  due  principally  to  the  exceptionally  low 
tax  rates  which  have  been  made  possible  by  the  great  increase  in 
the  total  assessment  and  the  lower  level  of  public  expenditures. 
The  aggregate  assessed  valuation  rose  from  $272,829,659  in  1904 
to  $1,168,012,658  in  1913,  while  the  average  tax  rate  for  the  state 

'  Cf.  below,  p.  351. 


344  THE  STATE  TAX  COMMISSION 

declined  from  $2,155  P^^  $100  in  1904  to  $0,968  in  1913.^  The 
lowest  rate  during  this  period  was  $0,765  in  1906,  but  the  sub- 
sequent increase  of  expenditures  caused  an  advance.  The  loss  of 
revenue  from  the  Kquor  licenses  and  the  heavy  expenses  of  the 
state  government  due  to  labor  difficulties  led  the  state  auditor  to 
caution  against  rapid  growth  along  other  lines,  unless  the  people 
were  willing  to  bear  heavier  taxes. ^  This  increase,  if  reflected  in 
the  tax  rates,  will  cause  increasing  diflSculty  in  the  assessment  of 
intangible  property. 

Should  the  tax  rate  remain  stationary,  however,  it  is  clearly 
impossible  to  secure  a  complete  return  of  all  of  the  taxable 
"  moneys  "  in  the  state.  This  class  includes,  in  West  Virginia,  all 
demand  deposits  as  well  as  coin  and  other  forms  of  circulating 
medium.  In  1909  the  aggregate  individual  bank  deposits  in  the 
state  were  $83,426,460,  and  in  1914  this  total  had  risen  to  $120,- 
749,000.  All  of  the  progress  in  administration,  plus  the  stimulus 
of  one  of  the  lowest  tax  rates  in  the  United  States,  has  only 
secured  an  assessment  of  moneys  on  a  basis  of  not  more  than  35- 
40  per  cent  of  full  value.  The  experience  of  other  states  is  demon- 
strating that  much  more  drastic  administration  would  not  secure 
much,  if  any,  better  results  under  the  uniform  rule.^ 

In  the  class  of  tangible  property  the  only  group  that  calls  for 
special  comment  is  that  of  "  chattels  real,"  or  leaseholds.  In 
1905  the  legislature  undertook  this  method  of  assessing  the  excess 
of  taxable  capacity  of  the  oil  and  gas  wells  and  coal  mines.'*  The 
lease,  which  was  declared  to  be  a  "  chattel  real,"  is  properly  to  be 
classed  as  intangible  property;  but  it  represents  so  directly  an 
interest  in  real  property  which  is  assessed  by  actual  view  and 

^  The  average  tax  rate  since  1904  has  been  as  follows: 

Year                                Rate  per  $ioo  Year                                Rate  per  Jioo 

1904 $2.iS5                         1909 $o.86s 

190S 1.841                         1910 0.84s 

1906 0.765                         1911 0.848 

1907 0.839                         1912 0.858 

1908 0.846                        1913 0.968 

'  Auditor  of  West  Virginia,  Report,  19 14,  p.  31. 

^  Cf.  e.  g.,  the  experience  of  Ohio.    Below,  pp.  505,  506. 

*  Laws  of  West  Virginia,  1905,  ch.  29.  Cf.  T.  C.  Townsend,  "  The  Taxation  of 
Coal,  Oil  and  Gas  in  West  Virginia,"  Proceedings  of  the  National  Tax  Conference, 
1908,  pp.  395-410. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  345 

examination,  that  it  is  here  grouped  with  the  tangible  forms  of 
personalty.  This  method  of  taxing  these  properties  is  of  doubtful 
value.  It  is  certain  to  fail  when  administered,  as  it  is  in  West 
Virginia,  by  the  local  assessors.  In  order  to  be  successful  at  all, 
it  would  be  necessary  to  know  in  great  detail  the  facts  concerning 
costs  of  operation,  net  earnings,  the  probable  life  of  the  well  or 
mine,  and  the  reserve  supply  of  oil,  gas  or  coal.  In  other  words, 
much  the  same  sort  of  investigation  is  required  as  for  a  complete 
ad  valorem  assessment  of  mines.  The  tax  commissioner  is  not 
equipped  to  gather  this  information,  and  there  is  very  little 
prospect  that  the  state  will  grant  this  equipment.  The  production 
tax  seems  to  be,  therefore,  the  form  of  taxation  best  suited  to  the 
conditions.  This  has  been  consistently  recommended  by  the  tax 
commissioners  since  the  office  was  created.^ 

It  has  already  been  shown  that  the  tax  commissioner  does  not 
possess  the  authority  necessary  to  undertake  a  vigorous  correc- 
tion of  the  local  results.  One  attempt  was  made  to  bring  pressure 
upon  the  assessors  through  judicial  proceedings,  the  recourse 
which  the  law  suggests  be  employed.  In  1906  mandamus  pro- 
ceedings were  instituted  in  Fayette  county  to  remove  the  assessor 
from  office  for  neglect  and  failure  to  perform  his  duties. ^  The 
state  supreme  court  of  appeals  denied  the  writ  of  mandamus  on 
the  ground  that  the  evidence  did  not  show  that  the  local  valua- 
tions had  been  fraudulently  made.  The  evidence  relied  upon  by 
the  tax  commissioner  was  the  vast  difference  in  the  assessment 
and  the  seUing  price  of  the  properties;  but  the  assessor  testified 
under  oath  that  the  assessments  represented  his  honest  judgment 
as  to  the  value  of  the  property  and  the  case  was  dismissed.  Such 
an  outcome  reveals  the  utter  futility  of  this  method  of  securing 
effective  administration. 

Administration  of  the  License  Taxes 

The  license  taxes  of  West  Virginia  constitute  an  important 
body  of  tax  legislation,  much  of  which  is  distinctly  regulative  as 

'  State  Tax  Commissioner  of  West  Virginia,  Report,  1906,  p.  25;  ibid.,  1910, 
p.  70;  ibid.,  1914,  p.  15;  ibid.,  1916,  p.  10. 

*  This  case  is  reviewed  in  the  Report  of  the  Ta.x  Commissioner,  1906,  pp.  15-17. 


346  THE  STATE  TAX  COMMISSION 

well  as  fiscal  in  character.  The  tax  commissioner  is  required  to 
prescribe  all  of  the  forms  used  in  the  issue  of  Hcenses  and  to  hear 
appeals  on  any  question  regarding  the  action  of  the  county  clerk 
in  the  issue  of  the  license,  though  strangely  enough,  his  decision 
in  such  an  appeal  is  subject  to  review  by  the  circuit  court  of  the 
county  in  which  the  hcense  is  issued.^  This  is  another  curious 
example  of  the  survival  of  the  older  machinery  of  appeal  along 
with  the  centraHzed  administration  that  has  more  recently 
developed,  and  as  in  the  other  cases  of  its  survival,  the  effects 
have  been  more  restrictive  than  beneficial.  Since  1909  the  tax 
commissioner  has  had  the  authority  to  issue  licenses  and  collect 
the  fees  from  any  person  whom  he  may  find  to  be  liable  for  the 
payment  of  such  fees,  and  he  may,  with  the  approval  of  the  gover- 
nor, appoint  agents  for  the  collection  of  such  delinquent  fees.^ 

The  last-named  feature  of  the  law  has  greatly  strengthened  its 
enforcement.  The  agents  of  the  tax  commissioner  go  into  every 
county  and  keep  close  watch  upon  the  persons  engaged  in  any  of 
the  businesses  or  occupations  for  the  privilege  of  exercising  which 
a  tax  must  be  paid.  For  the  six  years  1909-14  these  agents 
brought  into  the  state  treasury  a  total  of  $128,517.  Much  of  this 
sum  would  not  have  been  collected  except  for  this  close  inspection, 
since  it  was  obtained  principally  from  persons  who  had  succeeded 
in  evading  the  county  officials. 

Taken  as  a  whole  the  receipts  from  the  license  taxes  have  been 
important  for  the  state.  In  191 2  the  total  receipts  from  Hcenses 
was  $818,741,  while  the  total  state  revenue  from  all  sources  for 
this  year  was  $5,491, 201.^  The  bulk  of  the  receipts  came,  how- 
ever, from  seven  classes,  which  contributed  in  191 2,  $791,000. 
The  most  important  single  source  has  been  the  tax  on  retail  liquor 
dealers,  from  which  was  realized  in  191 2  over  $574,000.  The 
recent  adoption  of  state-wide  prohibition  will  necessitate  replace- 
ment of  this  source  of  revenue.^  Among  the  least  important 
licenses  in  191 2  were  those  on  fortune  tellers  ($30.45)  nurseries 

1  License  Laws  of  West  Virginia,  §  42-a. 

^  Laws  of  West  Virginia,  1909,  ch.  68. 

'  The  figures  are  given  in  the  reports  of  the  auditor. 

*  Auditor  of  West  Virginia,  Report,  1914,  pp.  29-32. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  347 

($99.00),  and  druggists  ($657.58).    Several  other  taxes  yielded 
less  than  $5000  each. 

There  seems  to  be  room  for  a  reform  of  the  system  by  eliminat- 
ing a  nmnber  of  the  less  important  license  taxes.  This  would  free 
the  tax  commissioner  from  a  portion  of  his  supervisory  activity 
which  yields  so  small  a  return  to  the  state  and  make  way  for 
great  concentration  in  the  lines  which  will  show  larger  results. 
Much  would  be  gained,  for  instance,  by  permitting  the  tax  com- 
missioner to  transfer  the  agents  who  now  watch  the  administra- 
tion of  the  Hcense  system  so  closely  to  the  work  of  inspecting  and 
supervising  the  local  assessors  of  general  property.  If  the  smaller 
licenses  are  intended  to  be  regulative  and  the  revenues  are  to  be 
regarded  as  purely  incidental,  then  a  more  logical  arrangement 
would  be  to  place  the  administration  of  such  Hcenses  under  the 
control  of  those  ofl&cials  who  enforce  the  police  regulations  of  the 
state.  Such  taxes  involve  the  use  of  the  police  power,  which  is 
primarily  invoked  in  their  enactment;  and  the  proper  agency  for 
their  enforcement  seems  to  be  the  police,  rather  than  the  taxing 
officials.* 

The  Inheritance  Tax 

The  inheritance  tax  was  first  adopted  in  West  Virginia  in  1887, 
but  until  1904  its  administration  was  in  the  hands  of  the  county 
clerks  and  the  total  collections  for  the  seventeen  years  were  only 
$55,765.94.2  In  1904  the  tax  commissioner  was  placed  in  charge 
of  the  tax,  and  the  collections  have  since  averaged  more  than 
$100,000  annually.  The  budget  estimates  for  1915-16  placed  the 
yield  at  $125,000.^  While  the  law  has  been  greatly  strengthened 
by  central  administration  it  is  still  defective  at  some  points.  The 
tax  commissioner  does  not  yet  have  the  authority  to  name  a 
representative  upon  the  local  board  of  appraisers  which  values 
the  property  of  decedents.  In  consequence,  estates  are  quite 
generally  undervalued  and  the  commissioner  is  powerless  to 
protect  the  interests  of  the  state.    The  central  administrative 

'  In  1916  the  tax  commissioner  objected  seriously  to  being  compelled  to  act  as 
prohibition  commissioner.     Report,  1916,  p.  16. 
2  Auditor  of  West  Virginia,  Report,  1910,  p.  32. 
'  Ibid.,  1914,  p.  182. 


348  THE  STATE  TAX  COMMISSION 

control  should  be  increased,  in  the  interest  both  of  the  state 
finances  and  of  justice  among  the  various  sections  of  the  state, 
over  which  varying  standards  of  assessing  taxable  estates  prevail. 
This  could  be  done  either  by  allowing  the  tax  commissioner  to 
select  a  representative  on  the  appraisal  board  or  by  permitting 
him  to  review,  on  his  own  motion,  the  findings  of  these  boards. 

The  Supervision  of  Public  Accounting 

At  the  special  session  of  1908  the  legislature  passed  an  act  pro- 
viding for  the  inspection  and  supervision  of  pubHc  oflSces  and 
establishing  a  uniform  system  of  public  accounting,  auditing  and 
reporting.^  The  tax  commissioner  was  made,  ex  ofl&cio,  chief 
inspector  and  supervisor  of  pubhc  ofiices.  Subject  to  his  approval, 
the  state  board  of  control,  which  was  created  in  1909,^  was  to 
prescribe  the  forms  of  vouchers,  books,  accounting  systems  and 
other  features  which  might  be  introduced.  This  enlargement  of 
state  administration  is  in  fine  with  the  practice  of  several  other 
states  in  extending  central  control  and  supervision  over  the 
mechanism  and  forms  of  public  accounting.  The  necessity  for  it 
in  West  Virginia  is  shown  by  the  fact  that  in  1911-12  the  audits 
conducted  disclosed  a  total  of  $543,478  due  the  state,  counties 
and  other  districts.^  The  tax  commissioner  of  West  Virginia 
deserves  credit  for  his  courageous  performance  of  an  unpleasant 
duty  in  the  face  of  strenuous  opposition.  Two  test  cases  were 
brought  in  which  the  defendants  were  supported  by  the  sheriffs' 
organization.  The  vaUdity  and  practicabihty  of  the  law  and  of 
the  system  of  accounting  prescribed  under  it  were  completely 
sustained  by  the  courts.^  The  vigorous  enforcement  of  this  law 
has  brought  into  prominence  the  evils  of  the  fee  system  and  the 
need  of  a  depositary  law.  Summary  power  should  be  given  some 
central  authority  to  enforce  the  discharge  of  duties  imposed  by 
law  upon  pubHc  ofiicials,  and  to  compel  more  prompt  settlements 
by  county  treasurers  at  the  close  of  the  fiscal  year  and  of  their 
term  of  office.^ 

1  Laws  of  West  Virginia,  1908,  ch.  33.  *  Ihid.,  1909,  ch.  58. 

'  Chief  Inspector  of  Public  Ofl&ces,  Report,  1912,  pp.  78,  79. 
*  Ibid.,  pp.  6,  7.  '  Ihid.,  p.  7. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA  349 

While  this  control  may  be  said  to  be  the  first  step  in  the 
development  of  a  scientific  budget  system  for  state  and  local 
finances,  and  as  such  is  the  very  foundation  of  the  reforms  of  the 
financial  system,  yet  the  additional  duties  which  are  imposed  by 
its  enforcement  have  overloaded  the  tax  commissioner.  A  depart- 
ment of  accounting  has  been  established,  with  a  skilled  account- 
ant in  charge,  but  the  tax  commissioner  has  not  escaped  the 
responsibility  involved  in  this  supervision.  The  burden  of  ad- 
ministering efficiently  the  tax  system  of  the  state  is  already  too 
great  for  one  man  and  the  people  are  facing  the  practical  certainty 
of  a  dechne  in  the  standards  of  the  ofiice  by  extending  unduly  the 
scope  of  the  work.  The  function  of  supervising  and  inspecting 
public  offices  is  highly  important,  but  it  should  be  met  by  an 
adequate  increase  in  the  organization  of  the  tax  department.  The 
fourth  biennial  report  of  the  tax  commissioner,  for  1911-12, 
evidences  this  pressure.  Reference  is  made  to  some  twenty-two 
pages  of  discussion  of  tax  reform,  written  by  a  former  commis- 
sioner in  the  report  for  1909-10,  and  this  discussion  is  said  to  be 
regarded  as  a  part  of  the  fourth  report.  ^  This  is  in  lieu  of  any 
intensive  discussion  of  the  tax  situation  in  191 2,  and  strongly 
suggests  an  official  who  is  too  hurried  to  study  his  own  problem. 

Recommendations 

One  of  the  most  important  functions  of  the  tax  commission  in 
every  state  has  been  to  direct  public  opinion  and  thought  along 
the  Hues  of  progressive  tax  reform  and  to  suggest  legislative 
changes  which  will  attain  the  improvements  suggested  by  reason 
and  experience.  The  West  Virginia  tax  commissioners  have 
steadily  taken  an  advanced  position  on  matters  of  tax  reform  and 
have  contributed  materially  to  the  development  of  better  laws 
and  more  effective  administration.  The  text  of  the  third  report 
(1909-10)  was  given  almost  completely  to  an  argument  for  the 
classification  of  property.  Mention  has  been  made  of  the  other 
important  reforms  advocated  by  the  commissioners,  all  of  which 
have  been  in  the  direction  of  sound  tax  reform.   In  some  respects 

*  State  Tax  Commissioner  of  West  Virginia,  Report,  1912,  p.  5.  A  similar  inclu- 
sion of  the  same  material  was  made  in  the  reports  of  1914  and  1916. 


350  TEE  STATE  TAX  COMMISSION 

it  seems  that  there  has  not  been  sufficient  pressure  for  needed 
changes,  but  the  outsider  can  never  judge  adequately  the  local 
temper  which  might  make  such  recommendations  inexpedient. 
In  view  of  the  limited  equipment  of  the  commissioner's  office  and 
of  the  restrictions  upon  the  proper  exercise  of  the  powers  neces- 
sary to  the  efficient  performance  of  the  functions  of  the  office,  the 
work  of  the  West  Virginia  tax  department  should  be  given 
approval  and  comjnendation. 


TAX  COMMISSIONER  OF  WEST  VIRGINIA 


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CHAPTER  XI 

THE  STATE  BOARD  OF  TAX  COMMISSIONERS 
OF  WASHINGTON 

When  the  state  of  Washington  was  admitted  to  the  Union  in 
1889  the  general  property  tax  had  already  been  established  as  the 
basis  of  its  financial  system.  The  new  state  presented  the  rela- 
tively simple  economic  conditions  which  everywhere  have  proved 
the  most  favorable  environment  for  the  development  of  that 
system  of  taxation.  The  original  tax  administrative  organization 
was  simple  and  displayed  the  characteristic  decentraHzation  of 
real  authority.  The  local  assessment  was  in  the  charge  of  a 
county  assessor  over  whom  no  central  control  existed.  This 
officer  had  Httle  real  authority  over  the  multitude  of  deputy 
assessors  in  the  tax  districts,  a  condition  which  was  highly  favor- 
able to  the  emergence  of  the  ubiquitous  evils  of  undervaluation, 
evasion  and  discrimination  in  assessments.  The  state-wide  exist- 
ence of  these  conditions  was  evidenced  by  the  estabHshment  of  a 
state  board  of  equaHzation  in  1891.^  The  duties  of  this  board, 
originally  composed  of  the  secretary  and  auditor  of  state  and  the 
land  commissioner,  were  transferred  in  1893  to  the  board  of  land 
commissioners,  a  body  which  had  superseded  the  single  official  in 
charge  of  that  department.^  In  1897  the  legislature  reverted 
again  to  the  original  plan  of  1891.^  These  changes  were  due  to  the 
experiments  that  were  being  tried  out  in  the  organization  of  the 
land  office.  They  suggest  that  the  state  board  of  equahzation  was 
not  taken  seriously  and  that  considerations  of  convenience  and 
economy,  to  say  nothing  of  poHtics,  took  precedence  over  equi- 
table tax  administration. 

The  forces  which  brought  forth  the  tax  commission  are  difficult 
to  trace.  No  evidence  has  been  found  of  a  strong  pubUc  senti- 
ment such  as  has  so  often  been  the  forerunner  and  to  some  extent, 

1  Laws  of  Washington,  1891,  ch.  140.  '  Ibid.,  1897,  ch.  71. 

2  Ibid.,  1893,  ch.  125. 

352 


TAX  COMMISSIONERS  OF  WASHINGTON  353 

the  progenitor,  of  the  tax  commission  in  some  other  states.  So 
far  as  can  be  learned,  no  special  investigations  had  been  made 
before  the  board  of  tax  commissioners  was  decided  upon  and  the 
absence  of  a  clear  formulation  of  plans  resulted  in  several  years  of 
piecemeal  legislation  in  the  effort  to  develop  an  efficient  adminis- 
trative body.  To  illustrate:  the  board  of  tax  commissioners  was 
estabhshed  in  1905  and  at  that  time  was  required  to  supervise  the 
tax  system,  to  assist  in  the  state  equalization  and  to  administer 
the  inheritance  tax.^  In  1907  the  central  assessment  of  railroad, 
telegraph,  express  and  private  car  line  companies  was  initiated 
and  placed  under  the  board's  jurisdiction. ^  In  this  year  also  the 
board  was  placed  in  charge  of  escheats,^  and  in  1909  it  was  made 
an  excise  board  with  the  duty  of  issuing,  and  collecting  for,  the 
annual  liquor  hcenses.*  The  laws  relating  to  the  administrative 
authority  of  the  board  of  tax  commissioners  evolved  only  slowly 
to  the  stage  of  a  clear  cut  definition  of  that  body's  status  and  func- 
tions. They  had  hardly  reached  that  stage  in  191 5  when  the 
legislature  removed  the  tax  commissioners  from  the  state  board  of 
equalization,  leaving  that  body  composed  of  the  auditor,  the  com- 
missioner of  pubHc  lands,  and  a  member  from  the  public  service 
commission.^  This  reaction  toward  a  more  primitive  and  clearly 
less  satisfactory  arrangement  was  only  a  temporary  manifesta- 
tion of  the  political  struggle  of  which  the  tax  department  had 
been  the  center  for  years.  The  legislature  of  191 7  aboHshed  the 
tax  board  and  substituted  a  single  commissioner,  but  returned 
him  to  the  state  board  of  equalization.^  The  work  of  the  state 
board  of  tax  commissioners  from  1906  to  1914  will  be  described, 
together  with  a  brief  account  of  the  equahzation  of  191 6  under 
the  new  board. 

Equalization 

The  function  of  equalization  was  performed  by  the  earher  ex 
officio  state  board  of  equahzation  according  to  the  principles  and 

1  Laws  of  Washington,  1905,  ch.  115.  '  Ibid.,  ch.  133. 

2  Ibid.,  1907,  chs.  78,  131.  *  Ibid.,  1909,  ch.  91. 

*  Ibid.,  1915,  ch.  7.    A  more  welcome  change  was  the  withdrawal  of  the  tax  com- 
missioners from  the  board  in  charge  of  the  public  land  office.     Ibid.,  ch.  6. 
^  Ibid.,  1917,  ch.  54. 


354  THE  STATE  TAX  COMMISSION 

standards  which  have  everywhere  appeared  to  be  characteristic 
of  this  type  of  organization.  The  limitations  of  the  state  equaliza- 
tion only  served  to  heighten  the  indifference  of  this  board  toward 
its  duty,  and  they  will  doubtless  not  strengthen  the  present 
board's  sense  of  obligation  for  a  thorough  and  exacting  scrutiny 
of  the  local  results.  In  Washington  the  state  equaHzation  is  made 
chiefly  for  the  purpose  of  apportioning  the  direct  state  tax.  It  is 
an  equalization  among  counties  and  it  leaves  untouched  the  intra- 
county  valuations  which  are  the  basis  of  all  local  levies.  The 
incentive  to  a  careful  equaHzation  is  much  less  under  such  cir- 
cumstances than  it  is  in  those  states  in  which  the  figures  as  finally 
determined  by  the  state  board  become  the  basis  for  the  payment 
of  all  taxes.  The  steady  but  unequal  depreciation  in  the  basis  of 
assessment  under  the  earlier  regime  led  to  increasing  inequahty 
in  the  distribution  not  only  of  the  state  tax  but  of  local  taxes  as 
well.  The  state  board  of  equalization  was  hardly  responsible  for 
the  relative  decHne  in  assessed  valuations  as  it  was  in  no  sense 
a  supervisory  body.  Furthermore,  the  state  tax  offered  by  no 
means  the  only  incentive  to  undervaluation  and  evasion  and  the 
state  board  of  equalization  never  possessed  jurisdiction  over  local 
discriminations.  Even  a  careful  state  equalization  could  have 
afforded  Httle  assurance  of  counteracting  the  very  defective  local 
assessment.  The  legislature  was  striking  at  the  root  of  the 
inequalities  in  taxation  in  giving  the  tax  commission  supervisory 
control  over  the  original  assessment  process  as  well  as  a  share  in 
the  state  equalization. 

The  only  redeeming  feature  of  the  assessments  made  under  the 
former  board  of  equaHzation  was  the  shifting  of  a  somewhat 
larger  proportion  of  the  total  tax  burden  to  personal  property; 
but  the  lack  of  administrative  power  and  the  absence  of  interest 
on  the  part  of  the  state  board  made  this  changed  proportion  an 
incident  of  the  local  assessments  rather  than  a  result  of  the  state 
equalization.^  The  total  assessment  of  property  in  the  state  was 
less  in  1905  than  it  had  been  in  189 1,  a  fact  which  indicates  clearly 
that  the  standard  of  valuation  had  been  steadily  depreciating 

1  Personal  property  was  12.8  per  cent  of  the  total  assessment  in  1895,  and  19.5 
per  cent  in  1905. 


TAX  COMMISSIONERS  OF  WASHINGTON  355 

during  this  time.  As  is  usual  during  a  period  of  progressive  under- 
valuation, the  departure  from  the  legal  standard  was  productive 
of  great  differences  in  the  basis  of  assessment  in  various  localities 
and  as  applied  to  various  classes  of  property.  Evidence  of  these 
inequalities  was  speedily  discovered  by  the  tax  commission, 
which  began  an  investigation  shortly  after  entering  upon  its 
duties.    Commenting  upon  the  situation  it  said :  ^ 

It  was  frequently  found  that  certain  classes  of  property  were  assessed  at 
50  to  60  per  cent  of  their  actual  value,  while  other  classes  of  property  in  the 
same  county  and  locality  were  escaping  with  an  assessment  not  exceeding 
15  per  cent.  ...  In  some  counties,  it  can  safely  be  asserted,  the  average 
value  of  aU  property  did  not  exceed  20  per  cent  of  its  actual  value,  whUe 
in  other  counties  it  approximated  50  per  cent. 

Upon  the  creation  of  the  board  of  tax  commissioners  the  state 
board  of  equalization  was  reorganized.  It  was  thereafter  to  be 
composed  of  the  tax  commissioners,  the  auditor  and  secretary  of 
state  and  the  commissioner  of  pubHc  lands,  with  the  auditor  act- 
ing as  president.  In  1907  the  secretary  of  state  was  withdrawn 
from  the  board  and  the  tax  commissioners  were  left  in  the 
majority.  In  practice  the  latter  have  prepared  the  equaHzation 
data,^  a  task  in  which  they  apparently  did  not  encounter  un- 
desirable interference  from  the  ex  officio  members.  The  tax  com- 
missioners were  appointed  too  late  in  1905  to  participate  in  the 
equalization  for  that  year;^  but  in  anticipation  of  the  assessment 
and  equalization  of  1906  special  forms  were  prepared  for  the 
public  service  corporations  and  new  lists  were  issued  for  the 
returns  of  general  property.  These  lists  called  specifically  for 
fifty-five  different  items  of  property,  including  a  separate  state- 
ment of  the  acreage  and  value  of  improved  and  unimproved  lands. 
As  the  result  of  these  changes  and  of  the  general  stimulus  of  the 
new  administrative  forces,  the  total  assessment  of  property  was 
increased  in  1906  to  $530,209,882,  or  more  than  62  per  cent  over 
1905.  It  was  estimated  that  approximately  $50,000,000  of  this 
amount  consisted  of  property  not  previously  assessed.'' 

1  State  Board  of  Tax  Commissioners,  Report,  1906,  p.  5. 

*  In  1912  the  assessors'  convention  adopted  a  resolution  approving  the  proposed 
elimination  of  ex  officio  members  from  the  board  of  equalization.  Proceedings  of 
the  Assessors'  Convention,  1912,  p.  12. 

*  State  Board  of  Tax  Commissioners,  iJe^ort,  1908, p.  6.       *  Ibid.,  i9io,pp.  10, 11. 


356  THE  STATE  TAX  COMMISSION 

The  methods  pursued  in  the  actual  equalization  do  not  appear 
to  have  been  materially  altered  by  the  board  of  tax  commissioners, 
except  for  the  introduction  of  a  variation  of  the  sales  method, 
which  was  appHed  only  on  the  occasions  of  the  biennial  assess- 
ments of  real  estate.  The  board  has  described  the  preparation  of 
this  ratio  as  follows :  ^ 

The  Tax  Commission  first  caused  a  list  of  transfers  to  be  made  in  each 
county,  describing  the  property  conveyed  therein  during  the  preceding 
twelve  months,  giving  the  names  of  grantor  and  grantee  and  showing  the 
consideration.  The  lists  formed  the  basis  for  the  interrogation  of  witnesses 
examined  concerning  the  value  of  property.  Sessions  of  the  Board  were 
held  in  each  county,  and  all  told  eight  hundred  and  eighty-five  witnesses 
were  examined  under  oath  as  to  the  actual  price  paid  for  property  changing 
hands  during  the  preceding  twelve  months.  Stenographic  records  were 
made  of  this  testimony,  from  which  lists,  describing  the  property  concerning 
which  testimony  was  taken,  were  made  and  forwarded  to  the  county  audi- 
tors, who  were  required  to  certify  the  assessed  value  of  each  description  as 
equalized  by  county  boards.  Upon  the  return  of  these  lists,  the  actual 
values  were  extended  on  them  and  the  ratio  of  assessed  to  actual  value  was 
computed. 

Such  a  method  of  computing  sales  ratios  appears  to  be  much 
less  satisfactory  than  the  elaborate  procedure  of  the  Wisconsin 
commission,  or  even  than  the  somewhat  less  thoroughgoing 
methods  used  in  Minnesota  and  Kansas,  and  consequently  the 
results  in  Washington  must  be  regarded  as  less  valuable.  The 
Washington  board's  plan  of  constructing  the  sales  ratio  is  open  to 
several  objections. 

In  the  first  place,  the  investigations  have  hardly  covered  suffi- 
cient ground  to  be  truly  representative.  The  data  have  been  col- 
lected for  only  one  year  in  each  case,  while  the  number  of  persons 
examined  has  been  too  small  to  afford  a  representative  list  of 
transactions  for  each  county.  Only  eight  hundred  and  eighty-five 
persons  in  the  whole  state  were  questioned  in  1910  and  an  exami- 
nation of  the  stenographic  reports  of  this  series  of  inquiries  showed 
that  some  of  these  witnesses  had  no  definite  evidence  regarding 
actual  transactions  in  real  estate.  In  King  county,  containing  the 
city  of  Seattle,  the  total  value  of  the  property  concerning  which 

1  State  Board  of  Tax  Commissioners,  Report,  1910,  pp.  10,  11;  also,  ibid.,  1916, 
pp.  71,  72. 


TAX  COMMISSIONERS  OF  WASHINGTON  357 

testimony  was  taken  was  less  than  one  per  cent  of  the  total 
assessed  valuation  of  the  county. ^  The  assessor  of  Yakima  county 
charged  that  the  testimony  taken  in  that  county  related  prin- 
cipally to  orchard  lands  and  the  assessor  of  Lincoln  county  stated 
that  the  tax  commission  seldom  included  poor  land  as  well  as 
good  land,  with  the  result  that  counties  with  a  large  proportion  of 
poor  land  were  assigned  excessively  high  ratios.^ 

In  the  second  place,  there  has  been  some  tendency  toward  a 
professional  witness  list.  In  subsequent  investigations  practically 
the  same  list  of  witnesses  has  been  used  as  in  the  first  inquiry  and 
the  wisdom  of  the  selections  has  been  questioned  by  at  least  one 
former  member  of  the  board. ^ 

Finally,  in  both  the  oral  examinations  of  witnesses  and  the 
statistical  compilations,  sufficient  precautions  have  not  been 
observed  against  the  inclusion  of  improper  data.  In  view  of  the 
extreme  care  found  by  the  Wisconsin  commission  to  be  necessary 
in  order  to  detect  and  eliminate  the  various  kinds  of  abnormal 
transactions,  the  Washington  methods  can  hardly  be  accepted  as 
usable.^  The  tax  commissioners  have  not  been  unaware  of  these 
objections.^  The  truth  of  the  matter  is  that  the  limited  appro- 
priations for  the  use  of  the  department  have  not  permitted  the 
employment  of  the  field  and  ofiice  assistance  necessary  for  the 
compilation  of  a  set  of  ratios  on  a  more  elaborate  scale  and  in  a 
more  accurate  manner. 

The  difl&culty  of  using  ratios  based  upon  data  collected  bien- 
nially for  the  purpose  of  performing  an  annual  equalization  of 
certain  classes  of  property,  is,  of  course,  obvious.  Real  estate 
values  do  not  fluctuate  according  to  a  set  biennial  schedule. 
Grant  for  the  moment  that  the  ratios  compiled  in  the  even 
numbered  years  represent  fairly  well  the  relation  of  assessed  to 
true  value  for  those  years.  In  the  alternate  years  a  certain  shift- 
ing of  real  values  will  have  occurred  but  this  shift  will  not  be 
evenly  distributed.   In  some  counties  the  increase  in  value  will  be 

^  Interview  with  the  assessor  of  King  county,  July,  191 1. 

*  Proceedings  of  the  Assessors'  Convention,  1914,  p.  60;   ibid.,  191 2,  p.  27. 
'  Interview  with  ex-Commissioner  T.  E.  Parrish,  Sept.,  191 1. 

*  Cf.  above,  pp.  239,  240,  244,  245. 

*  State  Board  of  Tax  Commissioners,  Report,  1916,  pp.  11,  12. 


358  THE  STATE  TAX  COMMISSION 

large,  in  others  small;  while  in  still  other  cases  there  may  have 
been  actual  decreases  in  value.  The  condition  of  rapid  and 
divergent  changes  in  value  appHes  particularly  to  the  western 
states.  The  percentages  do  not  then  represent  at  all  times  the 
actual  ratio  of  assessed  to  true  value.  For  the  distribution  of  the 
state  tax  this  may  be  of  comparatively  Httle  moment,  except  as 
values  are  changing  more  rapidly  in  some  than  in  other  sections 
of  the  state.  But  it  does  result  in  greater  unfairness  in  the  dis- 
tribution of  corporate  valuations  in  the  odd  numbered  years, 
penaUzing  the  corporations  when  other  real  values  have  advanced, 
favoring  them  when  real  values  have  declined,  as  compared  with 
the  values  of  the  even  numbered  years. 

But  of  course  it  cannot  be  granted  that  ratios  constructed  by 
such  methods  do  accurately  display  the  relation  of  assessed  to 
true  values  for  the  various  counties,  even  in  assessment  years. 
The  improbability  of  equitable  distribution  of  the  state  tax  is 
increased,  therefore,  especially  as  among  the  several  classes  of 
property.  Regarding  simply  the  ratios  themselves,  the  board 
succeeded  in  eliminating  the  more  extreme  variations  and  in 
showing  a  closer  approximation  to  equahty  of  assessments.  The 
percentages  of  1914  have  less  range  and  are  more  closely  grouped 
around  the  mean,  than  those  of  1908.  Yet  this  evidence  of  greater 
uniformity  proves  nothing  unless  the  figures  themselves  are 
thoroughly  reHable,  and  the  board's  statistical  methods  reflect 
considerable  doubt  upon  this  point.  Personal  observation  of 
these  methods  confirms  the  conclusion  of  unrehability,  a  con- 
clusion which  is  further  strengthened  by  the  fact  that  the  attempt 
has  been  made  to  construct  county  ratios  for  both  real  and  per- 
sonal property  from  the  information  obtained.  The  utterly 
inadequate  volume  of  sales  data  is  thus  made  the  basis  of  a 
comparison  with  the  aggregate  of  real  and  personal  property  in 
the  state  and  the  statistical  value  of  the  resulting  ratios  is 
correspondingly  diminished. 

In  the  equalization  of  personal  property  returns,  no  effort  has 
been  made  to  check  up  the  local  figures  either  as  to  quantity  or  as 
to  values;  and  in  the  majority  of  items  the  county  returns  have 
been  accepted  without  question.    In  the  earlier  years  it  was  cus- 


TAX  COMMISSIONERS  OF  WASHINGTON  359 

tomary  to  make  some  changes  in  the  valuations  of  farm  animals, 
vehicles,  watches,  musical  instruments  and  sewing  machines.* 
These  classes  have  generally  been  equalized  at  certain  average 
values.  But  all  of  the  remaining  classes  of  personal  property, 
comprising  about  thirty-eight  out  of  fifty-five  items,  have  usually 
been  approved  as  returned  by  the  county  boards.  Since  19 10  the 
whole  of  the  personal  property  schedule  has  been  approved  as 
returned  from  the  counties  without  change,  and  apparently 
without  debate. 

Because  of  these  defects  of  method  the  state  equalization  in 
Washington,  as  performed  by  the  board  of  tax  commissioners, 
appears  to  have  been  inadequate  to  deal  with  inequalities  either 
among  counties  or  classes  of  property.  The  use  of  the  ratios  has 
effected  certain  changes  in  the  real  estate  assessments  of  the 
counties  and  to  that  extent  has  negatived  the  local  efforts  at 
avoidance  of  the  state  tax.  It  is  true,  also,  as  the  board  has 
recently  said,  that  granting  the  strong  probability  of  error  in 
the  ratios,  they  were  nevertheless  the  most  nearly  accurate  sys- 
tem that  had  been  devised  or  adopted  in  the  state  up  to  that 
time.2  The  new  state  board  of  equalization,  created  in  1915, 
continued  to  use  the  ratios  prepared  by  the  tax  commissioners  in 
1 914.  No  new  sales  data  were  compiled  in  19 16  and  since  this 
board  has  a  legal  existence  of  not  over  twenty  days  in  each  year 
there  is  no  likelihood  that  any  future  revision  of  these  1914 
ratios  will  ever  be  made  by  it.  Rapidly  changing  land  values  will 
soon  render  them  wholly  obsolete  and  leave  the  state  board  of 
equalization  completely  at  sea. 

The  restriction  of  the  state  equahzation  to  the  adjustment  of 
county  totals  has  always  prevented  the  board  from  dealing  with 
some  of  the  worst  features  of  the  local  assessment  of  property. 
The  burden  of  local  taxation  greatly  exceeds  that  of  the  direct 
state  tax  and  since  its  distribution  is  entirely  unaffected  by  the 
state  equahzation,  there  has  always  been  ample  incentive  for 
local  undervaluation  and  evasion.    The  practice  of  adopting  the 

'  The  proceedings  of  the  state  board  of  equalization  are  published  in  the  biennial 
reports  of  the  state  board  of  tax  commissioners,  separately  published  in  1916. 
*  State  Board  of  Tax  Commissioners,  Report,  1916,  pp.  11,  12. 


360  THE  STATE  TAX  COMMISSION 

local  personal  property  returns  with  little  or  no  attempt  at  check 
or  corroboration  has  increased  the  inequaHty,  since  the  strong 
probability  is  that  the  assessor  who  undervalues  real  estate  is  also 
returning  the  personal  property  of  his  district  below  full  value. 
There  is  also  the  possibility  that  the  proportion  of  personal  prop- 
erty which  escapes  the  assessor  will  vary  in  different  counties, 
and  against  the  effects  of  this  variation  the  board's  methods  and 
practice  have  made  no  provision.^ 

The  Washington  tax  law  has  always  required  an  assessment  at 
full  value.  The  actual  basis  of  local  assessment  had  become  hope- 
lessly depreciated,  and  but  little  progress  had  been  made  under 
the  board  of  tax  commissioners  toward  a  higher  basis  of  valua- 
tion. In  1913  the  legislature,  thinking  apparently  to  remedy  the 
situation,  enacted  an  amendment  which  provided  that  property 
should  be  assessed  at  "  not  to  exceed  50  per  cent  of  full  value."  ^ 
State  legislatures  have  done  many  queer  things,  the  country  over, 
but  it  would  be  difficult  indeed  to  find  anywhere  a  measure  which 
surpasses  this  one.  Any  percentage  of  full  value  below  50  per 
cent,  which  the  assessor  cares  to  select,  is  a  legal  basis  of  assess- 
ment and  the  various  assessors  are  free  to  give  full  rein  to  their 
fancy  and  to  the  desires  of  constituents.  The  tasks  of  equitable 
equalization  and  of  effective  supervision  are  tremendously  in- 
creased by  this  absurd  provision.  The  board  of  tax  commissioners 
recommended  the  adoption  of  a  uniform  basis  of  assessment,  and 
expressed  a  preference  for  an  assessment  at  full  value,  with 
appropriate  tax  and  bond  limit  legislation.^ 

As  long  as  the  process  of  equahzation  concerns  simply  the  dis- 
tribution of  the  state  tax  its  significance  will  remain  small.  For 
two  reasons,  however,  there  is  need  of  greater  accuracy.  The 
first  of  these  is  the  outcome  of  the  existing  methods  of  taxing 
public  service  corporations,  which  is  by  the  levy  of  local  rates 
upon  valuations  centrally  determined  and  apportioned  to  the 
taxing  districts  upon  a  mileage  basis.  Justice  demands  that 
corporate  property  be  equalized  in  each  tax  district  to  the  same 

1  In  1914  the  board  referred  to  numerous  instances  of  admitted  discrimination 
by  the  assessors.    Report,  19 14,  pp.  16-17. 
*  Laws  of  Washington,  1913,  ch.  140. 
^  State  Board  of  Tax  Commissioners,  Report,  1916,  pp.  28-30. 


TAX  COMMISSIONERS  OF  WASHINGTON  361 

proportion  of  full  valuation  as  that  used  in  the  assessment  of 
other  property,  so  far  as  this  basis  can  be  ascertained.  The  deter- 
mination of  the  ratio  of  assessed  to  true  value  becomes  therefore 
a  problem  for  very  careful  study  in  order  to  insure  a  thoroughly 
satisfactory  equahzation  for  both  corporate  and  other  property. 
The  commission  has  not  attempted  to  prepare  ratios  for  each  tax 
district.  The  ratio  is  for  the  county,  intended  to  assign  to  any 
county  its  share  of  a  common  burden.  But  the  basis  of  assess- 
ment may  differ  widely  within  the  county.  Farm  lands,  city  real 
estate,  timber  lands,  undeveloped  land,  personal  property  — 
these  may  all  have  been  assessed  on  different  bases  in  different 
tax  districts  or  by  different  deputies.  The  purpose  of  the  equaliza- 
tion is  largely  defeated  when  corporate  property  is  apportioned 
at  a  uniform  ratio  to  a  number  of  districts  in  each  of  which  prop- 
erty has  actually  been  assessed  on  ratios  different  from  that  which 
the  commission  has  established  for  the  county  as  a  whole.  ^ 

A  second  reason  for  more  careful  and  complete  testing  of 
the  local  assessment  process  is  in  the  increasing  importance  of 
the  intracounty  tax  burden.  This  evil  is  not  now  reached  by  the 
state  equalization,  but  the  scope  of  that  process  should  be  broad- 
ened so  as  to  reach  down  to  the  individual  assessment  for  all 
purposes.  At  present  it  must  be  met  by  the  commissioner  under 
his  supervisory  powers.  A  thoroughly  reliable  sales  ratio  com- 
puted for  tax  districts  over  a  three  or  a  five  year  period  would 
prove  a  very  helpful  means  of  testing  the  local  assessments  and 
of  making  the  necessary  corrections  in  the  course  of  supervision. 
But  in  order  to  accomplish  this,  the  department's  resources  must 
really  be  considerably  extended.  The  compilation  of  sales  ratios 
was  discontinued  after  the  tax  commissioners  had  been  with- 

^  Cf.  above,  ch.  8.  The  Wisconsin  Tax  Commission  has  demonstrated  the  vari- 
ability of  the  ratio  of  assessment  of  different  classes  of  property.  It  is  hardly  a  suf- 
ficient defense  to  rely  upon  the  results  of  the  equalization  by  the  county  boards  to 
secure  intracounty  uniformity.  The  chairman  of  the  board  of  tax  commissioners 
suggests  this  in  a  recent  letter  (date  of  May  16,  1916).  The  variations  which  have 
occurred  within  the  same  county  in  other  states,  notably  Wisconsin,  were  not  cor- 
rected by  the  work  of  the  county  equalizing  boards.  Cf.  above,  pp.  255,  276.  In  the 
Washington  report  for  1916,  the  board  asserts  that  the  practice  of  local  discrimina- 
tion results  in  many  inequahties  which  the  county  boards  do  not  succeed  in  elimi- 
nating.   State  Board  of  Tax  Commissioners,  Report,  1916,  p.  30. 


362  THE  STATE  TAX  COMMISSION 

drawn  from  the  state  board  of  equalization  and  it  remains  to  be 
seen  whether  the  new  tax  commissioner  will  be  permitted  to  in- 
troduce improved  methods  in  the  preparation  of  future  ratios. 

The  Administration  of  Corporation  Taxes 

At  the  time  of  the  creation  of  the  board  of  tax  commissioners 
in  1905  the  public  service  corporations  were  still  being  assessed 
by  the  local  assessors  for  local  purposes  only.  The  natural  and 
inevitable  concomitants  of  such  a  primitive  system  —  evasion, 
inequality  and  undervaluation  —  were  all  abundantly  mani- 
fested in  Washington.  No  two  counties  were  assessing  the 
railroads  on  the  same  basis.  The  board's  influence  over  local  cor- 
porate assessments  was  small  and  the  uniform  schedule  of  values 
which  was  unanimously  agreed  upon  by  the  county  assessors' 
convention  in  1906  was  completely  abandoned  in  practice.^ 
Express  companies  evaded  the  tax  law  so  completely  as  to  secure 
virtual  exemption  from  all  taxation,  and  there  was  not  even  a  law 
providing  for  the  taxation  of  private  car  companies. 

Under  the  leadership  of  the  board  of  tax  commissioners  the 
legislature  was  persuaded  to  change  the  system  of  taxing  public 
service  corporations  in  1907.  The  board  recommended  the  ad 
valorem  method  in  preference  to  the  taxation  of  gross  earnings, 
being  influenced  in  part  by  the  experience  of  Wisconsin  and  in 
part  by  the  erroneous  view  that  the  use  of  interstate  receipts  as  a 
measure  of  taxation  was  unconstitutional.^  The  Wisconsin  policy 
was  not  strictly  adhered  to,  for  the  centrally  determined  valua- 
tions were  made  taxable  at  the  local  rates  instead  of  at  the  aver- 
age rate  for  state  purposes.^  Centralized  administration  was  also 
extended  to  street  and  electric  railroads,  but  included  only  such 
operating  property  of  the  latter  as  was  used  for  transportation 
purposes.  The  local  assessors  remained  in  charge  of  the  assess- 
ment of  the  property  used  for  electric  lighting,  power  and  other 
purposes.  Express,  telegraph  and  private  car  companies  were 
also  included  in  the  central  assessment.   No  logical  reason  existed 

1  State  Board  of  Tax  Commissioners,  Report,  1906,  p.  89. 

*  Ibid.,  pp.  72-121,  especially  p.  90. 

*  The  board  had  recommended  the  Wisconsin  plan. 


TAX  COMMISSIONERS  OF  WASHINGTON  363 

for  the  selection  which  was  made  of  the  companies  to  be  centrally 
assessed  and  some  important  classes  of  public  utilities  have  been 
omitted  which  should  have  been  included. 

The  first  central  assessment  of  corporate  property  was  for  the 
year  1908.  The  returns  to  be  made  by  the  railroads,  including 
street  and  interurban  electric  railways,  may  be  summarized  as 
follows : 

1.  Organization  data,  including  corporate  history,  names  and  addresses 
of  officers,  location  of  principal  offices. 

2.  Capitalization  data  for  the  various  issues  of  stocks  and  bonds. 

3.  Description  of  the  real  property  owned  or  operated  in  Washington, 
and  of  the  personal  property  for  the  whole  system  with  a  statement  of 
the  amount  to  be  apportioned  to  Washington ;  and  a  list  of  the  other 
assets,  such  as  stocks  in  other  companies,  etc. 

4.  Statement  of  the  income  accoimt. 

The  methods  used  by  the  Washington  board  in  valuing  the 
railroads  are,  as  in  some  other  states,  uncertain  and  difficult  to 
ascertain.  The  minds  of  the  members  have  apparently  not  always 
been  entirely  clear  on  the  point  and  personal  interviews  and  cor- 
respondence have  not  yielded  satisfactory  results.  But  it  may 
properly  be  inferred  from  these  sources  that  the  chief  factor  has 
been  the  stock  and  bond  valuation  supplemented  by  consideration 
of  the  gross  earnings. 

The  situation  was  complicated  —  though  it  should  have  been 
cleared  —  by  an  amendment  to  the  railroad  commission  law  of 
1907,  whereby  that  commission  was  given  the  authority  to  value 
the  railroads  for  the  purpose  of  regulating  rates  and  conditions  of 
service.  The  board  of  tax  commissioners  followed  the  practice  of 
accepting  the  physical  valuations  made  by  the  railroad  commis- 
sion in  all  cases  in  which  the  latter  had  made  valuations  of  the 
operating  property  and  used  its  own  methods  only  in  those  cases 
in  which  the  railroad  commission  had  not  yet  acted.  ^  In  1910, 
however,  the  tax  board  advanced  the  assessment  of  the  Oregon 
Railroad  and  Navigation  Company  from  $19,500,000,  the  figure 
established  by  the  railroad  commission,  to  $27,529,771.  The 
court  sustained  the  methods  and  results  of  the  railroad  commis- 
sion on  the  ground  that  the  legislature  had  intended  to  give  this 

'  State  Board  of  Tax  Commissioners,  Report,  1908,  p.  19. 


364  THE  STATE  TAX  COMMISSION 

board  precedence  over  the  board  of  tax  commissioners,  since  the 
amendment  to  the  railroad  commission  law  was  passed  subse- 
quent to  the  act  authorizing  the  board  of  tax  commissioners  to 
assess  the  railroads,  and,  further,  because  the  former  act  had  been 
passed  with  an  emergency  clause  while  the  latter  had  none.  In 
the  course  of  the  decision  the  court  compared  the  methods  used 
by  the  two  commissions,  to  the  detriment  of  that  employed  by 
the  tax  commission,  using  in  part  the  following  language:  ^ 

The  amendment  to  the  railroad  commission  act  was  not  only  passed  and 
approved  subsequent  to  the  passage  of  the  tax  commission  act  of  1907,  but 
as  against  the  "  bookkeeping,"  "  stock  and  bond,"  and  "  capitalization  " 
methods  of  ascertaining  value,  to  which  the  tax  commission  was  empowered 
to  resort,  with  a  view  of  the  property  if  it  deemed  it  necessary,  the  railroad 
commission  was  directed  to  find  the  actual  value  of  the  property;  not  by 
resort  to  bookkeeping  methods  or  at  the  peril  of  the  fluctuating  stock  mar- 
ket, but  by  reference  to  the  cost  of  reproduction;  not  the  market  value  of 
its  stock,  but  the  real  value  of  its  property,  considering  its  physical  character 
and  its  earning  capacity.  In  other  words,  it  was  provided  that  the  property 
of  railroads  should  be  valued  as  the  stock  of  the  merchant  or  the  land  of  the 
farmer  is  valued.  Although  we  are  reminded  by  counsel  that  the  taxing 
authorities  are  not  bound  to  consider  physical  value,  but  may  resort  to  the 
"  stock  and  bond,"  or  "  capitalization  of  earnings  "  method  of  taxation,  we 
are  undivided  in  our  answer  that  it  was  undoubtedly  the  intent  of  the  legis- 
lature, mindful  of  the  evasions  of  railroad  companies  in  years  past,  to  avoid 
these  methods  and  to  put  them  on  the  same  plane  as  the  individual  whose 
acre  is  under  his  feet.  Such  methods  were  and  are  unfair  —  unfair  to  both 
parties  to  the  tax;  and  we  may  weU  assume  that,  in  passing  the  amendment 
to  the  railroad  commission  act,  the  legislature  intended  just  what  it  said, 
that  when  ascertained,  the  value  fixed  by  the  railroad  commission,  after  a 
full  judicial  hearing  and  with  the  aid  of  its  engineers,  accountants,  experts 
and  practical  and  experienced  men  in  every  department  of  railroad  engineer- 
ing, accounting  and  construction,  should  be  binding  and  conclusive  upon 
the  pubhc  and  upon  the  railroad  companies. 

The  author  of  the  above  language  did  not  realize,  apparently, 
that  a  very  important  factor  in  the  value  of  both  the  farmer's 
acres  and  the  railroad's  property  was  earning  capacity,  and  was 
led,  in  consequence,  to  emphasize  unduly  the  merely  physical 
elements  in  the  total  value  of  a  corporation  the  business  of  which 
required  the  use  of  large  amounts  of  fixed  capital.  The  tax  com- 
missions of  Wisconsin  and  some  other  states  use  the  elaborate 
calculations  made  by  their  engineers  chiefly  as  a  guide  and  the 

^  65  Washington,  535. 


TAX  COMMISSIONERS  OF  WASHINGTON  365 

final  figures  of  the  Wisconsin  commission  have  always  been  higher 
than  those  prepared  to  represent  the  mere  physical  value.  While 
various  tax  commissions  are  inchned  to  insist  that  they  exclude 
intangible  elements  of  value,  the  prevailing  practice  indicates 
that  they  do  not  regard  an  engineer's  inventory  as  adequate  for 
the  proper  valuation  of  the  physical  property,  which  after  all  may 
be  only  another  way  of  saying  that  intangible  elements  are 
allowed  unconsciously  to  influence  the  results. 

In  the  decision  quoted  above,  the  court  proceeded  to  say  that 
in  the  case  of  any  property  not  yet  valued  by  the  railroad  com- 
mission its  value  might  be  estimated  by  the  tax  commission 
"  until  such  time  as  the  railroad  commission  could  determine  the 
true  value  of  the  property."  To  the  extent  that  the  Washington 
railroad  commission  had  completed  its  valuations  such  identity 
was  rendered  compulsory  by  this  construction  of  the  statute. 

In  191 1  the  railroad  commission  act  was  recast  and  that  body 
emerged  as  the  public  service  commission.  The  judicial  inter- 
pretation of  the  act  of  1907  was  written  into  the  act  of  191 1  in  a 
section  which  made  the  findings  of  the  public  service  commission 
not  only  admissible  as  evidence,  but  conclusive  evidence  of  the 
facts  as  to  the  data  of  the  valuation,  in  any  proceedings  in  which 
any  oflacial  or  department  of  the  state  and  the  company  affected 
were  interested.^  The  railroads  opposed  this  restriction  upon  the 
tax  board,  and  in  1913  an  amendment  was  adopted  which 
excepted  the  purposes  of  assessment  and  taxation  from  the  scope 
of  the  public  service  commission's  findings  of  fact.^  It  is  signifi- 
cant that  having  secured  their  amendment  the  railroads  should 
move  at  once  upon  the  tax  commission  with  requests  for  reduc- 
tions aggregating  $40,000,000.  Some  of  these  were  allowed  but 
some  advances  were  also  made  so  that  the  net  reduction  in  1913 
from  the  valuation  of  191 2  was  about  $309,000.  The  assessed 
valuation  of  steam  railroads  since  191 2  are  given  below.^  These 

1  Laws  of  Washingtott,  1911,  ch.  117.  ^  Ibid.,  1913,  ch.  182. 

'  The  assessed  valuations  of  railroads  in  Washington  since  1912  have  been  as 
follows: 

1912 $135,522,077  1915 $140,595,186 

1913 135,213,180  1916 138,653,188 

1914 137,538,331 

State  Board  of  Tax  Commissioners,  Report,  1916,  p.  38. 


366  THE  STATE  TAX  COMMISSION 

figures  indicate  that  the  railroads  have  not  found  the  tax  board  as 
lenient  as  they  evidently  supposed  in  19 13  it  would  be.  The  latter 
has  no  facilities  for  valuing  the  physical  plant  but  if  this  factor  is 
to  become  important  in  the  appraisals  of  the  two  commissions, 
the  wise  plan  would  seem  to  be  that  followed  in  Wisconsin.  Here 
the  railroad  and  tax  commissions  control  jointly  the  engineering 
staff  which  performs  the  physical  survey  and  inventory;  but  the 
use  to  be  made  of  the  engineer's  data  is  left  to  the  discretion  of  the 
respective  boards. 

It  should  be  added  further  that  the  Washington  railroad  com- 
mission did  not  confine  itself  entirely  to  the  "  cost  of  reproduc- 
tion," nor  did  it  altogether  disregard  some  of  the  more  indefinite 
criteria  of  value  which  were  so  heartily  condemned  by  the  court. 
In  fact,  this  body  rejected  the  ruling  of  the  Minnesota  court  to 
the  effect  that  the  controlHng,  and  in  fact  practically  the  only 
element  necessary  to  be  considered  in  ascertaining  the  value  of  a 
railroad  for  rate-making  purposes  was  the  cost  of  reproduction.^ 
The  Washington  commission  reacted  so  far  from  this  narrow 
view  that  it  collected  data  upon  every  element  of  value  which  it 
believed  that  an  intending  purchaser  would  consider.^  While  the 
equipment  of  the  railroad  commission  for  a  valuation  of  this 
character  was  probably  more  complete  and  its  results  therefore 
possibly  more  reliable  than  those  obtained  by  the  board  of  tax 
commissioners,  the  sweeping  and  invidious  contrast  of  methods 
drawn  by  the  state  supreme  court  was  not  justifiable. 

Notwithstanding  this  snarl  in  which  the  administration  of  the 
corporation  taxes  lay  for  some  time,  centraHzed  administration 
has  effected  a  better  distribution  of  the  tax  burden  between  the 
railroads  and  other  property.  In  1900  the  railroad  assessment 
was  10.2  per  cent  of  the  total.  This  proportion  had  decKned  by 
1907  to  7.5  per  cent,  but  it  advanced  to  13.5  per  cent  in  191 1  and 
to  14.6  per  cent  in  1915.   In  1916  it  was  14.1  per  cent  of  the  total. 

In  one  respect  the  tax  board  is  still  dependent  upon  the  public 
service  commission,  according  to  the  ruling  of  the  court  in  a 

^  Cf .  Findings  of  Fact  relative  to  the  Valuation  of  Railroads  by  the  Railroad  Com- 
mission of  Washington,  1909,  pp.  6,  7. 
*  Ihid.,  pp.  7-13. 


TAX  COMMISSIONERS  OF  WASHINGTON  367 

recent  case.  This  case  involved  the  right  of  the  former  board  to 
classify  railroad  property  as  operating  or  non-operating  property. 
The  tax  commission  had  classified  as  non-operating  certain  tracts 
which  had  previously  been  classed  as  operating  property  by  the 
public  service  commission.  The  local  assessors  were  directed  to 
list  and  assess  the  properties  in  question.  The  court  held  that  the 
tax  commission  was  without  authority  to  reclassify  the  property 
which  had  previously  been  classified  by  the  public  service  com- 
mission. The  former  body  must  therefore  wait  until  the  latter 
has  acted  before  including  new  acquisitions  of  property  in  its 
assessment  as  operating  property  and  before  assessing  property 
the  use  of  which  has  been  changed.^ 

The  preservation  of  equity  between  the  assessments  of  rail- 
roads and  other  property  subject  to  the  same  rates  of  taxation 
demands  that  the  former  be  equalized  to  the  same  percentage  of 
true  value  that  has  been  used  in  each  district  in  assessing  general 
property.  Such  an  equalization  was  provided  by  the  legislation 
of  1907,  and  thereby  the  legislature  candidly  recognized  the  con- 
dition into  which  general  assessments  had  drifted ;  but  it  did  not 
provide  the  machinery  and  funds  for  an  adequate  equalization  of 
this  property,  and  so  it  failed  to  appreciate  the  real  difficulty  of 
the  problem  before  the  tax  board.  Equalization  in  this  sense 
imparts  to  the  board's  methods  much  greater  significance  than 
they  could  have  had  if  used  merely  as  the  means  of  distributing 
the  state  tax.  The  defects  in  the  Washington  plan  of  constructing 
the  sales  ratios  have  already  been  discussed.  The  importance  of 
accuracy  is  seen  in  the  fact  that  in  19 14  the  board  found  the  true 
value  of  the  railroads  to  be  less  than  in  1913,  but  because  of 
changes  in  the  ratios  the  assessed  valuation  of  this  property  was 
higher  in  1914  than  in  1913.^  The  railroads  have  criticized  the 
ratios  as  being  too  high ;  ^  on  the  other  hand,  the  assessors  are 
interesting  in  dodging  state  taxes  —  and  criticisms  from  the 
board  of  tax  commissioners  —  by  overestimating  their  percent- 
ages,^ and  as  a  guide  to  an  impartial  course  between  these  con- 

*  State  Board  of  Tax  Commissioners,  Report,  1916,  pp.  23-26. 

2  State  Board  of  Equalization,  Proceedings,  1913,  p.  82,  and  1914,  p.  84. 
'  State  Board  of  Tax  Commissioners,  Report,  1914,  pp.  18.  19. 

*  State  Board  of  Equalization,  Proceedings,  1909,  p.  9. 


368  THE  STATE  TAX  COMMISSION 

flicting  claims  the  commission's  only  aid  is  its  sworn  testimony 
collected  biennially. 

Street  and  electric  railroads  and  telegraph  companies  have  been 
valued  as  units  in  much  the  same  manner  as  the  railroads,  and  the 
equalized  values  have  been  apportioned  to  the  tax  districts  on  a 
mileage  basis.  The  proper  valuation  of  electric  lines  is  compH- 
cated  by  the  restriction  of  the  board's  jurisdiction  to  the  operating 
property  while  the  local  assessor  remains  responsible  for  the 
assessment  of  the  hght  and  power  plants.  It  is  often  very  difficult 
for  the  company  to  make  a  satisfactory  segregation  of  values  and 
any  division  made  by  the  board  and  the  local  assessors  is  purely 
arbitrary.^  The  aggregate  valuation  of  the  telegraph  companies 
is  not  large  nor  are  the  tax  receipts  important  in  toto,  and  their 
significance  is  still  further  diminished  by  diffusion  among  the 
taxing  districts.  Local  taxation  of  such  property  is  relatively 
uneconomical  and  its  ineffectiveness  is  an  argument  for  diverting 
the  tax  into  the  state  treasury. 

Previous  to  1907  the  express  and  private  car  companies  had 
practically  escaped  all  taxation.  The  latter  had  never  been 
assessed,  while  the  total  taxes  paid  by  the  former  had  never,  in 
any  year  since  statehood,  equaled  $1000,  which  was  the  amount 
that  the  state  usually  offered  each  year  in  rewards  for  the  appre- 
hension of  express  robbers.  Taxes  were  paid  only  upon  the  tan- 
gible property  and  at  such  valuations  as  the  company  officials 
chose  to  return  to  the  local  assessors.  Bills  providing  for  the 
taxation  of  express  companies  on  their  gross  receipts  had  been 
introduced  into  the  legislature  for  each  of  the  six  years  preceding 
1906.  These  measures  had  always  passed  the  lower  house  but  had 
invariably  encountered  indefinite  postponement  in  the  senate. ^ 
In  view  of  this  preHminary  agitation  in  favor  of  the  gross  receipts 
tax  and  also  in  consideration  of  its  use  for  express  companies  in 
the  majority  of  the  states  the  board  of  tax  commissioners  recom- 
mended a  tax  of  4  per  cent  on  gross  receipts,  to  be  levied  for  state 
purposes  as  a  privilege  tax  in  addition  to  the  local  tax  on  tangible 
property.^  The  estimated  yield  was  put  at  $10,000  to  $15,000  per 
year  but  the  actual  receipts  have  risen  from  $42,459  in  1908  to 

1  State  Board  of  Tax  Commissioners,  Report,  1912,  p.  17.       ^  Ibid.,  1906,  p.  106. 
*  Tax  Laws,  ed.  of  1907,  p.  142.    The  rate  actually  adopted  was  5  per  cent. 


TAX  COMMISSIONERS  OF  WASHINGTON  369 

,1291111916,  The  tax  is  levied  on  all  sums  earned  or  charged, 
whether  actually  received  or  not,  for  business  done  within  the 
state.  The  returns  of  gross  receipts  have  been  checked  by  inspect- 
ing the  books  and  various  omissions  have  been  detected  and 
corrected.^ 

The  privilege  tax  of  7  per  cent  on  the  intrastate  gross  receipts 
of  private  car  companies  has  not  proved  a  source  of  any  consider- 
able revenue  for  the  state.  In  no  year  has  the  total  exceeded 
$4000,  and  in  1916  it  was  only  $1083,  The  usual  difficulties  have 
been  encountered  in  checking  the  returns  from  these  companies 
and  doubt  has  been  expressed  by  members  of  the  board  whether 
the  private  car  lines  were  paying  their  fair  share  of  taxes,  though 
no  data  were  available  to  prove  or  disprove  the  suspicion,^  The 
greatest  drawback  to  the  system  of  gross  receipts  as  applied  in 
Washington  is  the  restriction  to  intrastate  receipts,  leaving 
untaxed  the  state's  share  of  the  receipts  from  interstate  business. 
Notwithstanding  the  obvious  inadequacy  of  intrastate  earn- 
ings as  a  basis  of  taxation,  the  board  recommended  the  gross 
earnings  principle  in  this  form,  because  of  its  views  on  the  con- 
stitutional aspect  of  the  case.  The  board  was  clearly  in  error  in 
its  opinion  of  the  constitutionality  of  taxes  properly  levied  on 
the  basis  of  interstate  receipts,  and  since  1907  the  state  has  lost 
considerable  sums  which  might  have  been  collected  had  another 
view  prevailed,  fortified  by  a  wider  knowledge  of  the  law.^  This 
loss  is  magnified  by  the  fact  that  the  company  determines  the 
proportion  between  state  and  interstate  business  and  is  subject 
to  no  effective  supervision  in  making  the  separation. 

The  Supervision  of  Local  Officials 

Supervision  over  the  entire  tax  system  was  one  of  the  functions 
conferred  upon  the  board  of  tax  commissioners  by  the  original  act 
of  1905.    The  appearance  of  this  feature  of  the  modern  reform 

^  Interview  with  the  Board,  July,  1911.  In  1910  it  was  found  that  the  companies 
had  omitted  the  receipts  from  the  money  order  business. 

'  Interview,  July,  191 1. 

3  Cf.  Maine  v.  Grand  Trunk  Railway  (1891),  142  U.  S.  217.  Also,  Plehn,  "  The 
Taxation  of  Public  Service  Corporations,"  Proceedings  of  the  National  Tax  Confer- 
ence, 1907,  p.  640;   also,  Holcomb,  "  The  Assessment  of  Public  Service  Corpora- 


370  THE  STATE  TAX  COMMISSION 

movement  in  Washington  marked  the  beginning  of  state  control 
over  the  local  assessment  west  of  the  Mississippi.  The  insertion 
of  such  a  provision  in  the  Washington  law  is  therefore  significant, 
not  only  because  of  its  appearance  in  a  state  so  far  removed,  both 
geographically  and  economically,  from  those  states  in  which 
centraHzed  administration  had  already  emerged ;  but  also  because 
the  Washington  legislature  passed  over  the  problem  of  corporate 
taxation  to  introduce  central  supervision  of  local  assessments,  an 
order  of  development  that  has  been  quite  out  of  the  ordinary.^ 

While  the  law  provided  for  central  supervision  of  the  local 
assessment  process,  the  statutory  provisions  were  too  general  to 
secure  the  best  results.  For  instance,  the  commission  was  given 
the  power  to  "  advise,  confer  with  and  direct  assessors,  boards  of 
equalization  and  county  commissioners  as  to  their  duties  under 
the  law,"  and  to  direct  proceedings  against  any  of  these  officials 
for  neglect  or  other  violation.  For  the  proper  exercise  of  this 
function  authority  was  also  given  to  "  examine  and  test  the  work 
of  the  assessors  during  the  progress  of  the  assessments  or  at  any 
time  when  it  was  deemed  necessary  and  convenient."  To  this 
end  some  member  of  the  board  was  required  to  visit  the  counties, 
though  no  regular  round  of  official  calls  was  prescribed.^  The  plan 
for  direct  personal  supervision  offers  great  possibihties  in  promot- 
ing uniform  assessments  but  its  significance  is  materially  dimin- 
ished in  Washington  by  the  provision  for  the  procedure  in  case 
improprieties  are  discovered  in  the  assessor's  work.  The  board 
is  to  bring  the  matter  to  the  assessor's  attention,  and,  if  the  latter 
refuse  or  neglect  to  make  the  proper  changes,  the  board  is  to 
report  the  facts  to  the  county  commissioners  who  shall  present 
them  to  the  county  board  of  equalization.  A  more  effective  way 
of  dissipating  the  suggestions  and  control  of  the  central  authority 
could  hardly  be  devised.  This  poHcy  is  in  striking  but  unfavorable 
contrast  to  the  sharp  and  sure  remedy  available  to  the  Kansas 
commission  under  similar  circumstances,  namely,  removal  of  the 
assessor  and  reassessment  of  the  property.  The  only  way  open  in 

tions,"  Proceedings  of  the  National  Tax  Covfercttce,  1911,  pp.  188,  189  and  cases 
cited.  Also,  Report  of  the  Connecticut  Commission  on  the  Taxation  of  Corporations, 
1913,  pp.  18-20.  ^  Cf.  above,  ch.  i. 

^  Quotations  are  from  the  Tax  Laws,  ed.  of  1907,  pp.  113,  117,  118. 


TAX  COMMISSIONERS  OF  WASHINGTON  371 

Washington  for  the  removal  of  an  official  is  that  of  prosecution 
before  the  proper  court,  a  proceeding  the  chief  result  of  which  is 
apt  to  be  loss  of  prestige  for  the  board  itself. 

The  advisory  relations  between  the  board  and  the  assessors 
have  been  maintained  through  visits,  correspondence,  and  con- 
ferences, following  the  practice  of  most  states  having  the  county 
assessor  system.  The  visits  have  been  made  at  irregular  intervals 
and,  beyond  furthering  the  acquaintance  of  members  and  asses- 
sors, have  accompHshed  no  results  worthy  of  special  comment. 
The  correspondence  has  been  extensive  and  varied  and  has  been 
addressed  to  both  taxpayers  and  oflScials.  A  valuable  feature  of 
the  first  biennial  report  was  the  publication  of  the  more  signifi- 
cant portion  of  the  correspondence  with  ofl&cials  upon  questions 
of  principle  and  procedure.  Instead  of  assembling  the  assessors 
in  ofiicial  conferences  the  annual  meetings  of  the  assessors'  asso- 
ciation have  been  utilized  for  this  purpose.  This  association  held 
its  eighteenth  annual  convention  in  January,  1916.  Membership 
in  the  association  is  entirely  voluntary  but  the  tax  commission 
now  requires  all  assessors  to  attend  the  annual  conferences.  The 
travelHng  expenses  are  paid  by  the  counties.  The  program  is 
prepared  jointly  by  the  officers  of  the  association  and  the  tax 
commissioners  and  is  supplemented  by  the  reports  of  a  series  of 
committees.  The  recommendations  contained  in  these  reports 
have  not  always  carried  much  weight,  for  the  commission  records 
that  in  1906  the  convention  voted  unanimously  for  a  60  per  cent 
basis  of  assessment  which  was  later  as  unanimously  abandoned 
in  the  field.  ^  A  schedule  of  values  for  railroad  assessment  received 
the  same  treatment.  One  characteristic  of  the  convention's 
recommendations  in  1910  was  the  emphasis  upon  the  expert  work 
which  might  be  done,  but  which  presumably  had  not  been  done, 
for  the  benefit  of  all  the  counties  by  the  tax  conmiission.  Thus, 
the  board  was  urged  to  visit  each  county  in  order  to  examine  and 
adjust  operating  property  of  the  railroads.  These  corporations 
are  always  ready  to  secure  local  exemption  by  extending  the  scope 
of  their  local  operating  property.-    The  court's  recent  ruling 

'  State  Board  of  Tax  Commissioners,  Report,  1906,  pp.  8,  89. 

^  Cf .  Proceedings  of  the  17th  Annual  Conference  of  the  County  Assessors,  1915,  p.  34. 


372  THE  STATE  TAX  COMMISSION 

renders  the  tax  commission  helpless  to  correct  such  evasions, 
though  the  latter  may  continue  to  exercise  precautions  to  insure 
that  local  assessors  are  informed  as  to  the  property  which  should 
be  locally  assessed.  Another  committee  suggested  that  all  steam- 
boats and  registered  floating  property  be  listed  and  that  the 
vessels  assessable  in  each  county,  with  the  names  of  the  reputed 
owners,  be  reported  to  the  various  assessors.^  A  third  committee 
requested  the  appointment  of  an  expert  to  value  the  mining 
property  of  the  state  and  a  fourth  made  the  same  suggestion 
regarding  the  telephone  Hnes.^  In  191 6  the  tax  commission 
entered  into  an  agreement  with  the  assessors  whereby  it  deter- 
mined the  valuation  of  the  leading  telephone  companies  as  units 
and  apportioned  these  valuations  to  the  various  counties.  The 
real  property  of  these  companies  was  assessed  locally.  The  assess- 
ment of  the  personal  property  was  based  on  a  physical  valuation 
of  their  property  which  had  recently  been  made  by  the  pubhc 
service  commission.  The  net  result  was  an  increase  of  about 
$1,000,000  in  the  valuation  and  a  much  more  equitable  distri- 
bution of  the  valuation  among  the  tax  districts.^ 

The  central  feature  of  the  tax  commission's  supervisory  author- 
ity is  the  power  of  "general  supervision  of  the  tax  system." 
This  expression  has  occurred  in  almost  every  law  creating  a  tax 
commission ;  and  it  has  generally  been  construed  to  mean  a  kind 
of  harmless  advisory  supervision  which  has  been  unaccompanied 
by  any  authority  to  enforce  the  suggestions  made  or  the  advice 
given.  The  Washington  court  has  construed  the  term  to  mean 
more  than  this,  though  the  leading  case  did  not  involve,  nor  did 
the  decision  indicate,  how  far  the  commission  might  go  in  enforc- 
ing its  suggestions.^   Thus,  the  court  held  that  "  general  super- 

1  Later  conferences  began  to  recommend  central  assessment  of  all  registered 
craft  and  in  19 16  the  tax  board  proposed  a  bill  for  this  purpose.  Cf.  State  Board 
of  Tax  Commissioners,  Report,  1916,  pp.  31-33. 

^  Proceedings  of  the  12th  Annual  Conference  of  the  County  Assessors,  1910,  pp.  9, 
II.  The  suggestions  offered  in  1910  are  t)^ical  of  the  practical  recommendations 
offered  by  the  conventions.  The  agitation  against  the  tax  commission  was  strongly 
condemned  in  ibid.,  1913,  p.  14;  and  at  different  meetings  the  federal  government 
has  been  urged  to  hasten  the  survey  of  the  unsurveyed  lands,  amounting  in  191 2 
to  450,000  acres.    Ibid.,  1914,  p.  37. 

'  State  Board  of  Tax  Commissioners,  Report,  1916,  pp.  26,  27. 

■*  Great  Northern  Railway  v.  Snohomish  County,  48  Wash.  478. 


TAX  COMMISSIONERS  OF  WASHINGTON  373 

vision  "  meant  more  than  a  mere  advisory  oversight,  but  it  did 
not  then  state  just  how  much  more.  This  point  was  dealt  with 
more  definitely  in  a  more  recent  case,  in  which  the  court  sustained 
the  commission  in  a  specific  order  to  a  county  assessor  and  a 
county  board  of  equalization.  The  court  held  that  the  state 
board's  supervisory  power  included  the  right  to  direct  the  county 
taxing  officials.^  These  cases  have  established  the  commission's 
legal  right  to  assume  a  thorough  supervision  of  the  tax  system. 
But  for  two  reasons  little  supervision  of  a  positive  character  has 
been  attempted. 

In  the  first  place  the  law  provides  no  thorough  and  effective 
means  of  control,  such  as  the  power  of  removing  an  official  or  of 
ordering  a  reassessment.  Without  some  such  recourse,  general 
supervision,  even  as  interpreted  by  the  court,  is  of  little  practical 
avail  since  there  is  provided  no  method  of  effective  procedure 
against  the  delinquent  official.  The  commission  must  act,  in  all 
removal  proceedings,  through  the  regular  slow-moving  legal 
channels.  Too  much  initiative  in  discovering  abuses  would  be 
decidedly  inconvenient  if  the  only  corrective  lay  in  successful 
impeachment  proceedings.  The  actual  interference  with  local 
conditions  is  further  diminished  by  the  absence  of  appeal  from 
individuals  or  tax  districts  to  the  tax  commission.  As  a  result  of 
this  absurd  anomaly,  the  whole  question  of  the  equitable  distri- 
bution of  the  tax  burden  within  the  county  really  falls  outside  the 
jurisdiction  of  the  board  of  tax  commissioners,  and  all  appeals  for 
relief  of  local  inequaHties  go,  very  illogically,  to  the  superior 
court  of  the  county  instead  of  to  the  board  most  fitted  by  its 
experience  to  deal  with  them. 

A  second  excuse  for  comparative  inaction  previous  to  19 13 
was  the  general  unwillingness  to  increase  valuations  excessively 
because  of  the  opportunities  for  local  extravagance  which  would 
be  thereby  created.  The  situation  paralleled  that  of  Minnesota. 
The  legal  standard  of  true  cash  value  for  assessments  had  been 
lost  for  so  long  that  the  tax  levies  and  many  forms  of  expenditure 
had  become  adjusted  to  the  condition  of  low  valuations.  In 
creating  a  body  which  was  expected,  through  its  supervisory 

*  Stale  V.  Cameron,  90  Wash.  407. 


374  THE  STATE  TAX  COMMISSION 

powers,  to  reform  the  basis  of  valuation,  the  legislature  failed  to 
place  a  limit  upon  the  amount  of  money  which  might  be  levied 
or  expended  and  this  omission  virtually  blocked  any  action  look- 
ing toward  full  valuation.  The  assessors  voted  again  in  1910  to 
use  a  60  per  cent  basis  but  the  situation  went  along  without 
change  until  1913  when  the  law  was  changed  to  require  an  assess- 
ment not  in  excess  of  50  per  cent  of  full  value. ^  This  action 
reheved  the  commission  of  its  embarrassing  position,  though  it 
offered  little  prospect  of  more  equitable  assessments.  The  com- 
mission may  now  push  more  energetically  for  the  full  legal  valua- 
tion without  the  deterring  influence  of  possible  local  extravagance 
to  follow.  On  the  other  hand,  the  most  unfortunate  phrasing  of 
the  law  permits  the  assessor  to  regard  any  percentage  below  50 
per  cent  of  full  value  as  a  legal  basis  of  assessment  and  this 
renders  the  problem  of  equitable  taxation  quite  as  disturbing  as 
before.  It  certainly  does  not  lessen  the  need  of  strong  central 
supervision  of  the  original  assessment. 

In  addition  to  the  more  imposing  supervisory  authority  out- 
lined above  the  board  enjoys  certain  powers  of  a  general  adminis- 
trative character,  such  as  the  prescription  of  blanks  and  forms, 
the  power  of  compelling  the  appearance  and  testimony  of  wit- 
nesses, and  the  production  of  documentary  evidence.  These 
powers  are  accessory  and  are  attributes  of  every  tax  commission. 
Ordinarily  they  present  no  unusual  opportunity  for  great  reforms 
in  the  administrative  system,  though  careful  attention  to  them 
may  eliminate  much  friction  and  loss  of  energy.  In  various  direc- 
tions the  board  has  introduced  changes  in  the  forms  and  methods 
used  by  local  ofiicials,  some  of  which  have  been  fruitful,  others 
not. 

The  first  improvement  deserving  of  special  mention  is  that  of  a 
land  and  timber  cruise  of  the  state  for  the  purpose  of  estimating 
the  quantity  and  value  of  timber  and  timber  land  and  other 
unimproved  land.  Such  a  survey  of  the  state's  land  and  timber 
resources  has  been  of  great  value  in  the  assessment  of  these  forms 
of  wealth,  and  up  to  1914  it  had  added  approximately  $72,000,000 

'  Laws  0}  Washington,  1913,  ch.  140. 


TAX  COMMISSIONERS  OF  WASHINGTON  375 

to  the  tax  rolls.^  The  acreage  of  timber  lands  was  not  reported 
separately  prior  to  the  timber  cruises,  but  the  board  estimated 
that  in  1905  such  lands  were  assessed  at  an  average  value  of 
$4.88.  In  1914,  5,057,908  acres  of  timber  land  were  assessed  at 
an  average  value  of  $18.29  per  acre.  The  timber  cruises  and  the 
land  maps  which  the  counties  have  prepared  are  of  rather  unequal 
value.  The  cost  was  borne  by  the  respective  counties  but  some 
counties  were  unwilling  to  engage  first-class  cruisers,  with  the 
result  that  the  returns  were  not  entirely  rehable.  The  assessor  of 
Thurston  county — in  which  Olympia  is  situated — -professed  to 
regard  the  cruise  of  that  county  as  practically  worthless  for  the 
existing  condition  of  the  county,  as  it  had  been  made  years 
before  and  had  not  since  been  properly  revised.'  This  has  been  a 
general  defect  in  the  cruises.  But  notwithstanding  the  short- 
comings of  these  surveys,  they  constitute  the  only  possible  means 
of  properly  assessing  timber  lands  and  they  were  emphatically 
endorsed  by  the  county  assessors  in  their  annual  convention  of 
1910.^  The  assessors'  conamittee  on  timber  lands  in  this  year 
urged  that  the  state  board  of  equaHzation  use  the  cruises  instead 
of  the  acreage  in  comparing  the  different  timber  counties.  This 
suggestion  indicates  that  the  equalization  methods  then  in  use 
impressed  even  the  county  assessor  as  inadequate. 

Another  change  instituted  by  the  board  has  been  the  extension 
of  the  personal  property  Ust  to  include  some  fifty-five  items.  This 
enlargement  of  the  Hst  of  items  marks  the  entrance  upon  the  last 
phase  of  the  struggle  to  tax  personal  property  under  the  uniform 
rule  —  the  theory  being  that  evasions  can  be  diminished  by  desig- 
nating with  great  fullness  the  kinds  of  property  which  the  assessor 
is  to  seek.  It  cannot  be  shown  that  this  enlargement  of  the  per- 
sonal property  schedule  has  anywhere  accomplished  its  purpose. 

1  The  returns  of  timber  and  unimproved  lands  as  equalized  by  the  county  boards 
have  been  as  follows :  (millions) 

1906    1908    1910    1912    1914    1916 

Unimproved  land $89.6         ts5-9         $633  $62.6         $69.2         $66.6 

Timber  land 73.9  76.4  89.4  93.5  85.8 

Total $89.6       $129.8       $139.7       $152.0       $162.7       $152.4 

*  Interview  with  the  county  assessor,  July,  191 1. 

*  Proceedings  of  the  Annual  Conference  of  the  County  Assessors,  1910,  pp.  8,  9. 


376  THE  STATE  TAX  COMMISSION 

Many  of  the  items  added  by  the  Washington  board  have  brought 
only  insignificant  amounts  of  property  upon  the  tax  rolls,  and  all 
of  the  groups  added  relate  to  various  forms  of  tangible  property. 
Thus,  in  the  group  of  farm  animals,  there  are  eight  items,  with  a 
total  of  fourteen  subdivisions;  and  for  unproductive  personal 
property,  such  as  household  furniture  and  personal  belongings, 
there  are  at  least  seven  items.  Notwithstanding  these  efforts  to 
improve  the  assessment  of  personal  property  there  has  been  but 
little  real  gain.  The  total  amount  of  taxable  personal  property, 
after  deducting  the  exemptions,  has  risen  only  from  $82,100,000 
in  1906  to  $124,500,000  in  1916,  or  an  average  yearly  increase  of 
about  $4,000,000.  Further,  owing  to  the  exemption  of  credits  in 
1907,  the  increases  have  been  almost  entirely  in  the  tangible 
groups,  as  is  to  be  seen  in  the  table  given  as  an  appendix  to  this 
chapter.^ 

It  is  evident  from  this  table  that  since  the  amendment  of  1907, 
which  excluded  "  mortgages,  notes,  accounts,  moneys,  certificates 
of  deposit,  tax  certificates,  judgments,  state,  county,  municipal 
and  school  district  bonds  and  warrants  "  from  the  definition  of 
property  subject  to  taxation,  the  term  "  personal  property  "  has 
referred  in  Washington  almost  exclusively  to  tangible  personalty. 
The  results  of  the  assessment  of  this  class  show  that  the  largest 
relative  increases  have  been  made  in  household  and  personal 
effects,  and  vehicles,  both  of  which  are,  in  the  main,  unproductive 
forms  of  property.  The  largest  absolute  increase  occurred  in  the 
assessment  of  merchants'  and  manufacturers'  materials  and  mer- 
chandise, although  the  assessment  of  this  property  was  doubtless 
inadequate,  even  on  a  50  per  cent  basis.  A  smaller  proportion  of 
the  increase  has  been  borne  by  farm  animals  than  has  been  the 
case  in  some  other  states. 

The  attempt  to  tax  intangible  personalty  under  the  general 
property  tax  has  been  the  cause  of  more  inequality  and  injustice 
in  the  American  tax  system  than  any  other  single  factor.  In  this 
respect  the  Washington  board  of  tax  commissioners  found  a  most 
unsatisfactory  state  of  affairs.  The  agricultural  counties,  with 
small  population  and  less  wealth,  were  paying  taxes  on  larger 

1  Cf.  below,  p.  384. 


TAX  COMMISSIONERS  OF  WASHINGTON  377 

assessments  of  moneys  and  credits  than  the  counties  containing 
the  cities  of  Tacoma  and  Seattle.^  This  distribution  of  the  assess- 
ment was  equahzed  somewhat  in  1906,  though  the  total  amount 
of  moneys  and  credits  returned  was  only  $6,168,412,  while  the 
banks  of  the  state  reported  deposits  of  nearly  $130,000,000.  In 
view  of  these  disappointing  results,  the  members  of  the  board 
submitted,  in  their  first  biennial  report,  individual  statements 
setting  forth  their  views  upon  the  subject  of  credit  taxation. ^  A 
majority  took  the  position  that  "all  property  in  the  state,  except 
such  as  is  devoted  to  the  use  of  religious  and  charitable  institu- 
tions, should  be  taxed  in  some  form  and  in  some  amount."  The 
discussion  of  the  problem  led  in  1907  to  the  recommendation  of  a 
constitutional  amendment  which  would  have  permitted  the 
classification  of  property.  The  legislature  voted  to  submit  the 
amendment,  but  it  was  lost  at  the  polls  in  1908  by  a  large  ma- 
jority. This  adverse  vote  was  due  to  the  failure  of  many  people 
to  understand  the  purpose  of  the  proposed  amendment,  to  the 
belief  of  the  clergy  of  the  state  that  the  exemption  of  church 
property  was  endangered,  and  to  the  opposition  of  the  railroad 
interests.^ 

The  report  of  the  minority  member  of  the  commission,  who  had 
advocated  the  exemption  of  all  credits,  was  virtually  accepted  by 
the  legislature  in  the  bill  for  the  exemption  of  credits,  which  was 
passed  in  the  same  session  in  which  it  had  endorsed  the  classifica- 
tion amendment.^  This  act  was  promptly  contested  in  the  courts 
and  in  the  assessment  of  1908  the  board  ordered  assessors  to  list 
moneys  and  credits, but  the  order  was  not  generally  obeyed.^  The 
state  supreme  court  sustained  the  constitutionality  of  the  law 
except  as  to  "  moneys,"  on  the  ground  that  the  taxation  of  credits 
was  double  taxation  and  not  in  harmony  with  the  constitution.® 
On  the  other  hand,  it  said  that  money  "  possesses  such  value  by 

'  State  Board  of  Tax  Commissioners,  Report,  1906,  p.  159. 

*  Ibid.,  pp.  130-162. 
'  Ibid.,  1908,  p.  44. 

*  Laws  of  Washington,  1907,  ch.  48. 

*  Custis,  "  Taxation  of  Intangibles  in  Washington,"  Quart.  Journ.  Econ.,  xxiii, 
p.  718. 

'  50  Wash.  164. 


378  THE  STATE  TAX  COMMISSION 

way  of  immediate  purchasing  power  as,  in  effect,  robs  it  of  a  mere 
representative  character  and  clothes  it  with  the  dignity  of 
property  having  intrinsic  value." 

As  thus  construed,  the  act  remained  doubtful  on  one  or  two 
points.  It  was  obviously  not  the  intention  of  the  legislature  to 
exempt  bank  stocks,  as  an  act  providing  for  their  taxation  had 
been  passed  in  the  same  session.^  But  the  status  of  other  stocks 
and  bonds  has  remained  unsettled  though  the  consensus  of 
opinion  has  been  that  they  were  to  be  exempt.  Similarly,  the 
board  held  that  bank  deposits  were  "  money  "  and  ordered  the 
assessors  to  list  them.  The  assessor  of  King  county  refused  and 
his  example  was  followed  by  many  others.  The  returns  in  the 
table  below  show  that  moneys  have  been  virtually  exempted  by 
common  consent.  The  table  shows  too  that  the  general  property 
tax  has  broken  down,  and  is  fast  becoming  simply  a  tax  on  tan- 
gibles. The  legislation  of  1907  has  hardly  remedied  the  situation, 
which  requires  a  thoroughgoing  revision  of  the  constitutional 
provisions  relating  to  taxation  as  the  basis  of  sound  tax  reform. 
The  commission  has  consistently  advocated  the  abandonment  of 
the  uniform  rule,  but  thus  far  (1917)  without  success.^ 

From  the  above  review,  it  is  clear  that  centraUzed  administra- 
tion of  the  tax  system  in  Washington  has  not  yet  gone  far  enough 
for  the  most  effective  results.  In  consequence,  the  board  was 
able  to  push  its  reforms  just  far  enough  to  fall  foul  of  criticisms 
from  all  quarters.  Valuations  were  raised  but  the  tax  burden  re- 
mained oppressive.  The  legal  basis  of  valuation  has  been  lowered 
but  it  now  authorizes  more  chaotic  assessments  than  had  pre- 
vailed under  the  old  system.  The  courts  have  sustained  the 
commission's  attempts  to  exercise  coercive  power  but  adequate 
remedies  and  procedure  for  the  achievement  of  effective  results 
are  still  lacking.  Without  these  remedies  the  county  assessor  may 
display  all  of  the  traits  of  inefficiency  and  incompetency  which  are 
usually  regarded  as  the  attributes  of  the  township  assessor.  The 
most  troublesome  classes  of  intangibles  have  been  exempted 

^  Laws  of  Washington,  1907,  ch.  46. 

*  Cf.  State  Board  of  Tax  Commissioners,  Report,  1910,  pp.  21,  22;ibid.,  1912, 
pp.  13,  14;  ibid.,  1914,  pp.  12-20;  ibid.,  1916,  p.  28. 


TAX  COMMISSIONERS  OF  WASHINGTON  279 

but  serious  inequalities  remain  in  the  assessment  of  real  estate 
and  tangible  personalty.  The  tax  board  was  charged  with  the 
supervision  of  the  tax  system  of  a  great  state  but  the  legislative 
appropriations  did  not  permit  the  development  of  an  adminis- 
trative staff  of  sufficient  dimensions  to  maintain  vital  contacts 
with  the  local  officials.  The  people  have  not  generally  appre- 
ciated these  defects  in  the  tax  administrative  system  and  the 
board  of  tax  commissioners  received  the  censure  for  the  failure 
to  accomplish  more.  So  strong  was  the  criticism  in  191 2-13  that 
an  attempt  was  made  to  secure  the  abolition  of  the  board.  The 
removal  of  the  tax  commissioners  from  the  state  board  of  equal- 
ization was  quite  evidently  a  political  move  inspired  by  those 
who  sought  the  ultimate  destruction  of  the  board  of  tax  com- 
missioners. 

There  has  been  the  beginning  of  a  reaction  from  the  county 
assessor  system  under  the  county  option  plan  of  allowing  the 
people  to  decide  between  the  county  and  the  township  forms  of 
local  organization.  In  1908  Spokane  county  adopted  the  town- 
ship form  and  in  19 10  the  same  step  was  taken  by  Whatcom 
county.  The  board  declared  these  changes  to  be  "  disastrous  to 
uniformity  in  assessment  and  equality  in  taxation,"  and  cited  the 
sworn  testimony  of  the  Spokane  county  assessor  to  the  effect  that 
he  was  obliged  to  reduce  the  ratio  of  assessment  in  the  incor- 
porated cities  in  order  to  protect  them  against  the  discrimination 
being  practiced  by  the  township  assessors.^  The  county  assessor 
in  these  counties  remains  in  general  charge  of  the  assessments, 
and  the  board,  following  the  parallel  of  the  Great  Northern 
decision,  has  ruled  that  his  supervision  over  the  township  asses- 
sors was  mandatory  in  character. ^  But,  as  in  the  case  of  the 
central  authority  and  the  county  assessors,  no  adequate  means 
exists  for  enforcing  the  suggestions  that  have  been  made,  and  so 
the  supervision  remains  only  a  name. 

*  Cf.  State  Board  of  Tax  Commissioners,  Report,  1910,  pp.  17,  18. 

*  Circular  letter  of  May  2,  igii.    In  the  files  of  the  Board. 


380  THE  STATE  TAX  COMMISSION 

The  Inheritance  Tax 

The  inheritance  tax  was  adopted  in  Washington  in  1901/  but 
owing  to  the  failure  to  provide  for  its  effective  administration  it 
fell  into  decay  and  was  evaded  by  most  estates.-  The  board  of 
tax  commissioners  was  required  to  supervise  the  collection  of  the 
tax  and  it  began  at  once  an  energetic  search  of  the  county  probate 
records,  followed  by  prosecution  of  all  possible  cases  for  the  col- 
lection of  back  taxes.  Within  a  year  the  probate  files  had  been 
examined  in  approximately  20,000  cases  in  19  counties,  and  taxes 
aggregating  $41,558  had  been  collected  in  192  cases,  while  470 
other  cases  were  pending  in  which  a  tax  was  due  but  had  not  been 
collected.  In  many  cases,  in  which  the  estate  had  consisted  of 
personal  property,  a  settlement  had  been  made  and  the  property 
transferred  to  nonresidents.  In  1916  the  board  reported  that 
several  thousand  old  unreported  cases  had  been  discovered. 
Investigation  of  these  cases  added  greatly  to  the  work  of  the 
department  but  yielded  very  small  financial  returns  to  the  state.^ 

The  board  has  continued  its  acti\'ity  in  scrutinizing  the  reports 
of  probate  cases  and  has  handled  about  3500  returns  annually. 
This  has  involved  a  considerable  additional  burden  since  all 
estates  returned  must  be  examined  whether  a  tax  is  due  or  not. 
In  addition  to  the  purely  administrative  duties  imposed,  the 
board  has  been  called  upon  to  assist  in  the  defense  of  the  law 
before  the  highest  state  court.  Furthermore,  the  labor  of  prose- 
cuting the  claims  of  the  state  has  fallen  upon  it,  necessitating 
an  appearance  in  hundreds  of  cases  before  the  various  state 
courts.^ 

The  most  serious  weakness  in  the  inheritance  tax  law,  from  the 
administrative  side,  has  been  the  lack  of  injfluence  which  the 
board  might  exercise  over  the  appraisal  of  estates  taxable  under 
the  law.^  The  board  may  file  with  the  court  an  exception  to  the 
appraisement  and  the  court  will  then  review  the  valuation  placed 

1  Laws  of  Washington,  1901,  ch.  55. 

*  State  Board  of  Tax  Commissioners,  Report,  1906,  p.  8. 
'  Ibid.,  1916,  p.  7. 

*  Ibid.,  1914,  pp.  7,  8. 
'  Ibid.,  1906,  p.  16. 


TAX  COMMISSIONERS  OF  WASHINGTON  38 1 

upon  the  property;  but  without  the  privilege  of  being  repre- 
sented upon  the  original  appraisal  board  it  is  at  times  difficult  to 
detect  undervaluation. 

The  State  Excise  Board 

In  1909  the  board  of  tax  commissioners  was  made  a  state  excise 
board  with  the  duty  of  super\ising  the  issue  of  annual  state  liquor 
licenses  and  collection  of  the  charges  therefor.  ^  This  additional 
drain  upon  the  time  and  energy  of  the  board  presents  the  advan- 
tage of  bringing  another  of  the  state's  sources  of  revenue  under  the 
jurisdiction  of  the  head  of  the  fiscal  system.  There  is  the  possi- 
bility, however,  of  diverting  the  board  from  the  more  fundamental 
duties  of  its  office  through  the  multiplication  of  relatively  unim- 
portant tasks  in  connection  with  minor  sources  of  revenue.  This 
is  true  of  the  present  case,  in  which  pubHc  welfare  demands  that  a 
certain  supervision  be  exercised  over  the  conditions  attending  the 
traffic  in  liquors.  It  is  not  within  the  board's  province  to  under- 
take adequate  supervision  of  the  liquor  traffic,  and  to  do  so  would 
involve  the  neglect  of  more  important  duties.  On  the  other  hand, 
this  business  requires  a  certain  supervision  which  it  will  not 
receive  while  the  board  is  in  charge.  As  in  the  case  of  West 
Virginia,  the  writer  is  inclined  to  recommend  that  the  tax  board's 
time  and  energy  be  freed  for  more  significant  phases  of  the  fiscal 
administration. 

Escheats 

Following  the  board's  recommendation  the  function  of  escheat- 
ing officer  for  the  state  was  given  it  in  1907.^  It  was  well  known 
that  in  many  cases  the  laws  providing  for  the  escheat  of  property 
had  not  been  enforced  and  that  it  was  increasingly  easy  for  impos- 
tors to  take  advantage  of  this  laxity.  The  board  has  fought  these 
cases  with  diUgence,  and  for  the  biennium  1913-14  the  collections 
amounted  to  $59,158.^ 

'  State  Board  of  Tax  Commissioners,  Report,  iqio,  p.  34. 
^  Ibid.,  p.  129;  ibid.,  1908,  pp.  99,  100. 
^  Ibid.,  1914,  p.  36. 


382  THE  STATE  TAX  COMMISSION 

Recommendations 

The  Washington  board  of  tax  commissioners  has  been  very- 
active  in  recommending  changes  in  the  tax  system,  and  has  had 
the  satisfaction  of  seeing  some  of  its  suggestions  adopted.  The 
principal  instance  of  the  adoption  of  a  minority  view  upon  an 
important  question  was  in  the  case  of  the  exemption  of  credits  in 
1907.  Some  of  the  more  important  recommendations  of  recent 
years  have  been  the  following:  ^ 

1.  A  series  of  constitutional  amendments  designed  to  remove  the  xmiform 
rule  from  the  constitution  and  vest  the  legislature  with  greater 
discretionary  power  over  the  tax  system. 

2.  A  revision  of  the  method  of  taxing  timber  lands  by  basing  the  tax 
upon  the  cut  instead  of  upon  the  standing  timber. 

3.  Central  assessment  and  taxation  of  all  public  utilities. 

4.  Compulsory  statement  of  the  true  consideration  in  deeds. 

5.  Central  taxation  of  all  motor  vehicles  for  the  benefit  of  the  state 
highway  fund. 

6.  Assessment  of  all  registered  water  craft  by  the  state  board. 

7.  The  exemption  of  household  goods  and  mechanics'  tools. 

From  a  confidential  but  authoritative  source  comes  the  fol- 
lowing account  of  the  recent  legislative  manipulations: 

Recommendations  for  the  substitution  of  a  single  tax  commissioner  for 
the  board  of  three  members  were  made  by  Governor  Lister  in  1913,  1915 
and  again  in  191 7.  The  suggestion  was  not  taken  seriously  by  the  legisla- 
ture in  19 13.  When  it  was  renewed  in  1915,  the  legislature,  which  was  more 
than  three  to  one  against  the  governor,  attempted  to  abolish  the  tax  com- 
mission entirely  and  parcel  its  duties  out  to  deputies  in  various  other  offices. 
This  plan  was  admittedly  one  to  punish  the  governor.  The  bill  was  passed 
and  was  vetoed  by  the  governor,  and,  although  the  majority  in  the  legisla- 
ture had  sufficient  votes  to  pass  it  over  his  veto,  they  got  cold  feet  at  the  last 
minute;  or,  what  is  reported  to  be  the  case,  they  found  that  they  would  be 
one  vote  short  in  the  senate,  and  would  not  caU  up  the  matter  for  a  vote. 
This  left  the  State  Board  of  Tax  Commissioners  intact,  but  its  members, 
through  other  legislation  passed  at  the  same  time,  were  removed  from  the 
State  Board  of  Equalization  and  from  the  State  Land  Board.  In  1917  the 
governor  renewed  his  recommendation  and  had  a  bill  presented  to  the  legis- 
lature providing  for  a  tax  commissioner  at  a  salary  of  $3600  and  an  assistant 
commissioner  at  a  salary  of  $2400  together  with  such  other  help  as  was 
necessary.     The  legislature,  which  was  again  of  another  political  faith, 

^  State  Board  of  Tax  Commissioners,  Report,  1912,  pp.  13-31;  ibid.,  1916, 
PP-  7-33- 


TAX  COMMISSIONERS  OF  WASHINGTON  383 

passed  the  bill  but,  as  a  measure  of  punishment,  placed  the  salary  of  the 
commissioner  at  $3000  and  that  of  the  assistant  at  $1800,  and  cut  down  the 
appropriation  to  such  a  point  that  no  more  help  could  be  employed  than  was 
had  under  the  board  of  tax  commissioners} 

'  Italics  supplied  by  the  present  writer.  However  the  poUticians  may  have 
fared  in  such  disgraceful  brawUng,  it  is  certain  that  the  heaviest  punishment  was 
borne  by  the  taxpayers. 

My  correspondent  added  that  the  tax  board  had  been  the  football  of  poUtics 
since  its  establishment,  because  of  the  desire  of  other  state  officials  to  divide  the 
patronage  which  it  controlled,  and  the  belief  of  certain  classes  that  its  duties  were 
such  as  could  be  performed  by  lesser  clerks  and  deputies  at  a  financial  saving  to  the 
state. 


384 


THE  STATE  TAX  COMMISSION 


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3   «  g 


CHAPTER  XII 

THE  STATE  TAX  COMMISSION  OF  MINNESOTA 

It  has  already  been  seen  that  the  first  regular  state  boards  of 
equahzation  appeared  in  the  middle  west.  Minnesota  was 
admitted  as  a  state  in  1858  and  two  years  later  the  legislature 
provided  for  a  state  board  of  equalization.^  The  forces  which 
were  operating  to  render  such  boards  necessary  in  neighboring 
states  were  doubtless  exerting  their  influence  also  in  Minnesota. 
The  transition  from  territory  to  state  had  occasioned  a  con- 
siderable administrative  expansion. ^  The  basis  of  the  revenue 
system  was  the  general  property  tax  and  this  meant  that  the 
characteristic  evils  were  in  all  probability  present  in  greater  or 
less  degree.  The  conventional  models  of  the  time  were  followed  in 
the  first  act  on  the  subject  and  the  state  equalization  board  was 
given  authority  to  equahze  the  biennial  assessments  of  real  estate 
only.  The  problems  of  personal  property  assessment  were  inten- 
sified by  the  great  financial  strain  of  the  Civil  War,  and  in  1867 
the  board  was  required  to  equalize  the  annual  assessments  of  per- 
sonal property  also.^  No  documents  have  been  available  which 
would  shed  any  light  upon  the  work  of  the  state  board  of  equali- 
zation in  its  earher  career,  but  it  is  a  reasonable  inference  from  the 
course  of  legislation  that  the  experience  of  other  states  was  being 
repeated.  For  instance,  the  original  act  estabhshing  a  board  of 
equahzation  provided  that  the  reduction  of  the  local  aggregate 
by  the  state  board  should  not  exceed  one  per  cent.  In  1878  the 
secretary  and  treasurer  of  state  were  withdrawn  from  the  board, 
and  the  governor  was  required,  with  the  consent  of  the  senate,  to 
appoint  one  member  from  each  judicial  district.'*   The  inclusion 

1  Laws  of  Minnesota,  i860,  ch.  i.    This  board  was  composed  of  the  elective  state 
oflScers,  ex  officio. 

2  Cf.  Minnesota  Tax  Commission,  Report,  1914,  ch.  8,  especially  pp.  176,  177. 
^  Laws  of  Minnesota,  1867,  ch.  46. 

*  Ibid.,  1878,  ch.  I. 

38s 


386  THE  STATE  TAX  COMMISSION 

of  members  more  directly  representative  of  various  districts,  or 
more  concerned  with  the  tax  burdens  of  those  districts,  is  sugges- 
tive of  the  competitive  struggle  that  was  in  progress  to  shift  those 
burdens.  The  one  per  cent  Kmit  prevented  the  most  successful 
use  of  log-rolling  tactics  in  equahzation  but  there  was  nothing 
to  prevent  a  steady  and  rapid  decHne  in  the  basis  of  original 
assessment,  an  outcome  which  the  state  board  of  equaHzation 
apparently  could  do  nothing  to  check. 

Because  of  the  early  introduction  and  steady  extension  of  the 
gross  earnings  method  of  corporate  taxation,  administrative 
problems  of  this  sort  have  been  historically  less  important  or 
certainly  less  acute,  than  those  arising  from  the  general  property 
tax.  The  first  use  of  the  gross  earnings  tax  was  its  apphcation  to 
the  St.  Paul,  Stillwater  and  Taylor's  Falls  Railroad  Company  in 
1873.^  Other  railroads  were  given  the  option  of  being  taxed  by 
this  method  and  the  state  treasurer  was  made  the  collector  of  such 
taxes.  The  system  of  gross  earnings  taxation  had  been  extended 
to  several  other  classes  of  corporations  by  1907,  but  the  adminis- 
tration of  these  taxes  remained  in  charge  of  various  state  officials 
until  1 9 13  when  the  state  tax  commission  was  given  complete 
administrative  control  of  this  division  of  the  tax  system. 

In  1 90 1  the  legislature  created  a  special  tax  commission  and 
instructed  it  to  frame  a  new  tax  code.  The  infiltration  of  ideas  of 
tax  reform  from  other  states  is  seen  in  the  suggestion,  advanced  in 
the  legislative  resolution,  that  the  new  tax  code  should  "  include 
provisions  for  a  permanent  tax  commission."  ^  The  special  com- 
mission's report  was  profoundly  influenced,  as  was  natural,  by  the 
recent  progress  in  near-by  states,  especially  Indiana,  Wisconsin 
and  Michigan.  The  existing  conditions  were  only  briefly  analyzed, 
but  the  few  comments  on  the  situation  depicted  the  famihar  prac- 
tices of  underassessment,  evasion  and  discrimination.^  As  a 
remedy  for  the  defective  assessment  of  personal  property  it  was 
proposed  to  extend  the  listing  system  and  require  the  assessor  to 
be  more  inquisitorial.    This  feeble  makeshift  was  unconvincing 

1  Special  Laws  oj  Minnesota,  1873,  ch.  iii. 

^  Laws  of  Minnesota,  1901,  ch.  13. 

3  Report  of  the  Commission  to  frame  a  New  Tax  Code,  1902,  pp.  12,  13. 


TAX  COMMISSION  OF  MINNESOTA  387 

even  to  the  codifying  commission  itself;  for  it  added  that  if  such 
measures  failed  to  produce  results  far  more  satisfactory  than 
any  the  state  had  yet  known,  the  sooner  the  taxation  of  many 
classes  of  personal  property  was  abandoned  the  better.^  Of  most 
interest  in  the  present  connection,  however,  was  the  special 
commission's  plan  for  central  administrative  supervision  over  the 
whole  tax  system,  to  be  exercised  by  a  permanent  tax  commission.  ^ 
Extensive  powers  were  proposed  for  this  body  and  only  the  con- 
viction that  the  central  appointment  of  a  county  assessor  would 
be  too  advanced  for  the  community  to  tolerate  prevented  the 
inclusion  of  a  provision  to  this  effect.^  County  boards  had  been 
authorized  in  1895,  i^  ^^  were  deemed  expedient,  to  appoint  county 
supervisors  of  assessment,''  but  this  official  was  left  so  completely 
under  the  control  of  the  county  boards  as  to  give  him  no  inde- 
pendent voice  in  the  regulation  of  assessment  conditions.  Practi- 
cally no  use  appears  to  have  been  made  of  this  provision  and  the 
present  commission  has  consistently  urged  the  establishment  of  a 
county  assessor  or  supervisor  who  should  be  equipped  with 
adequate  resources  and  authority.^ 

The  report  of  the  codifying  commission  was  transmitted  to  the 
governor  and  legislature  on  January  10,  1902;  but  five  years 
elapsed  before  the  latter  made  any  attempt  to  establish  a  per- 
manent tax  commission.  As  adopted,  in  1907,^  the  plan  for  a 
central  administrative  head  of  the  tax  system  was  not  materially 
modified.  The  governor,  with  the  approval  of  the  senate,  was  to 
appoint  a  state  tax  commission  of  three  members  for  a  term  of  six 
years,  at  a  salary  of  $4500.  The  appointees  were  to  be  persons 
known  to  possess  skill  and  knowledge  in  matters  pertaining  to 
taxation.  The  new  tax  commission  was  given  power  to  equalize 
assessments,  though  the  old  state  board  of  equalization  was  to 
continue  in  existence  until  1909,  with  "  full  power  and  authority 

1  Report  of  the  Commission  to  frame  a  New  Tax  Code,  1902,  p.  15. 

*  Ibid.,  pp.  1 1 7-1 23. 
'  Ibid.,  p.  22. 

*  Laws  of  Minnesota,  1895,  ch.  294. 

*  Minnesota  Tax  Commission,  Report,  1910,  ch.  7;  also,  ibid.,  1912,  ch.  7,  and 
ibid.,  1914,  pp.  2,  232.    A  bill  for  this  purpose  failed  to  pass  the  senate  in  1913. 

*  Laws  of  Minnesota,  1907,  ch.  408. 


388  THE  STATE  TAX  COMMISSION 

to  review,  modify  and  revise  all  of  the  acts  of  said  commission  in 
so  far  as  they  related  to  the  equaHzation  and  valuation  of  prop- 
erty assessed  for  taxation.  ..."  Liberal  super\'isory  powers  over 
the  local  tax  system  were  also  provided,  including  authority  to 
order  reassessments.  The  diversified  system  of  corporation  taxes, 
embracing  gross  earnings  and  ad  valorem  taxation,  was  not 
disturbed  and  in  consequence  the  commission's  duties  in  this 
direction  were  in  the  beginning  much  less  significant. 

The  most  important  problem  which  the  commission  faced  at 
the  beginning  of  its  career  was  local  undervaluation.  This  con- 
dition, the  natural  product  of  decentralized  administration,  had 
actually  been  fostered  by  the  methods  and  attitude  of  the  state 
board  of  equalization.  Of  the  influence  of  the  latter  the  special 
tax  commission  of  1901  had  said:  ^ 

The  state  board  of  equalization  had  unconsciously  encouraged  a  disre- 
gard of  the  rule  of  taxation  prescribed  by  the  constitution.  Members  of  the 
board,  naturally  soHcitous  for  the  welfare  of  their  respective  districts,  have 
generally  sought  to  depress  rather  than  to  raise  valuations  in  the  counties 
constituting  their  districts. 

The  act  creating  the  commission  made  it  appear  that  this  body 
was  expected  to  restore  assessments  to  the  legal  basis  of  full  cash 
value.  But  in  undertaking  this  task  several  serious  obstacles 
were  encountered.  Chief  of  these  was  the  low  level  to  which  the 
actual  assessments  had  fallen. ^  So  completely  had  the  legal 
standard  been  lost  sight  of  that  the  legislature  and  all  subordinate 
levying  bodies  had  taken  cognizance  of  the  situation  by  adjusting 
the  tax  rates  to  the  lower  valuations.  In  addition,  the  salaries  of 
various  local  officials,  the  Hmits  of  local  indebtedness,  and  of  dif- 
ferent local  taxes  for  specific  purposes,  had  all  been  determined  by 
the  existing  valuations,  which,  though  in  clear  violation  of  law, 
had  thus  acquired  a  force  both  of  law  and  of  custom.  Assess- 
ment at  full  value  had  become  a  legal  fiction.  The  commission 
decided,  therefore,  that  the  sudden  and  complete  enforcement  of 
full  valuation  was  not  only  quite  impracticable  but  also  very 

1  Report  of  the  Commission  to  frame  a  New  Tax  Code,  1902,  p.  26. 

2  Minnesota  Tax  Commission,  Report,  1910,  p.  125;  ibid.,  1912,  pp.  105,  106; 
ibid.,  1914,  pp.  18-22. 


TAX  COMMISSION  OF  MINNESOTA  389 

undesirable  without  some  limit  upon  the  money  that  could  be 
raised  by  the  local  authorities.  In  the  absence  of  some  check 
upon  local  levies,  salaries,  and  debts,  the  funds  available  for  local 
purposes  would  be  increased  far  in  excess  of  local  needs;  and  this 
easy  affluence  would  inevitably  lead  many  communities  into 
extravagance  and  wasteful  living.  Excessive  increases  in  local 
taxes  have  occurred  in  some  of  the  counties  in  which,  for  one 
reason  or  another,  considerable  advances  have  been  made  in  the 
aggregate  assessment. ^  The  average  increase  for  the  state  in  the 
taxes  levied  from  1907  to  1913  was  70.21  per  cent;  but  six  coun- 
ties increased  their  total  tax  burden  in  this  time  by  percentages 
ranging  from  112.27  P^^"  cent  to  390.41  per  cent.- 

The  road  to  higher  valuations  was  blocked  by  other  obstacles, 
most  of  which  had  been  built  up  during  the  period  of  adminis- 
trative decentralization.  Since  1878  the  assessors  of  each  county 
had  been  required  to  meet  with  the  county  auditor  for  the  pur- 
pose of  receiving  instructions  and  the  necessary  blank  forms. 
Originally  designed  to  secure  uniformity  of  assessments,  these 
conferences  became  in  time  a  school  of  instruction  in  non- 
uniformity  as  the  chief  business  of  the  meetings  came  to  be  the 
assessors'  agreements  concerning  the  percentages  to  be  used  in 
assessing  different  classes  of  property.^  Not  only  did  these  per- 
centages vary  widely  for  the  several  kinds  of  property  in  the  same 
county;  there  was  also  great  diversity  in  the  schedules  of  per- 
centages adopted  among  the  counties.  Moreover,  these  meetings 
frequently  became  the  scene  of  agreements  to  pare  down  the 

'  In  1908  the  school  ofiicials  of  certain  school  districts  of  St.  Louis  county,  hav- 
ing inadvertently  made  a  higher  levy  for  school  purposes  than  was  necessary  after 
the  increase  of  the  iron  mine  assessments,  apphed  to  the  commission  for  an  abate- 
ment of  the  excess.  This  spirit  of  abstinence  was  short-lived;  for  in  1913  the  total 
taxes  in  St.  Louis  county  showed  an  increase  over  1907  of  129.6  per  cent.  Minne- 
sota Ta.x  Commission,  Report,  1908,  p.  139;  1914,  p.  223.  Cf.  R.  H.  Little's  articles 
on  the  extravagant  outlays  for  school  purposes  in  St.  Louis  county,  Chicago  Herald, 
May,  1915. 

*  The  sLx  counties  were  Mahnomen,  390.4  per  cent;  Koochiching,  182.3  P^r 
cent;  St.  Louis,  129.6  per  cent;  Roseau,  122.2  per  cent;  Itasca,  114. i  per  cent; 
Red  Lake,  11 2.3  per  cent. 

'  Cf.  Minnesota  Tax  Commission,  Report,  1908,  pp.  64-70,  for  lists  of  assessors' 
percentages;  ibid.,  1910,  pp.  442-449;  ibid.,  1912,  pp.  746-752.  Cf.  also  the  ex- 
perience of  Kansas,  below,  p.  425. 


390  THE  STATE  TAX  COMMISSION 

assessments  by  reporting  less  than  the  true  number  of  various 
forms  of  property.  It  thus  became  customary  to  hst  five  horses  as 
four,  three  cows  as  two,  and  so  on  through  the  list.  In  this  man- 
ner it  was  possible  for  the  assessor  to  favor  his  friends  and  also  to 
hold  down  the  tax  duplicate  for  his  district. ^ 

In  this  dilemma  between  the  law  and  the  facts  two  possible 
poUcies  were  open  to  the  commission.  One  was  that  of  securing 
a  Kmitation  of  the  rates  or  the  amounts  levied  locally  in  such  a 
manner  as  to  provide  only  the  normal  increase  of  funds  notwith- 
standing the  growth  in  assessed  valuations.  This  horn  of  the 
dilemma  had  been  seized  by  the  legislatures  of  Kansas  and  West 
Virginia. 2  The  other  alternative  was  to  secure  the  estabhshment 
of  the  standard  de  facto  as  the  standard  de  jure,  thereby  absolv- 
ing tax  ofl&cials  and  the  legislature  from  past  sins.  Precedents 
have  not  been  wanting  for  this  course,  as  Iowa  and  IlHnois  had 
actually  authorized  such  a  reduction  of  the  standard  of  valuation, 
while  the  Washington  tax  commission  had  been  recommending 
it  for  reasons  similar  to  those  encountered  in  Minnesota.  The 
latter  of  these  alternatives  was  chosen  since  the  commission 
beheved  that  a  change  in  the  legal  basis  of  assessment  was  more 
practicable  than  the  amendment  of  the  multitude  of  laws  resting 
upon  the  existing  basis  of  assessment.  However  much  one  may  be 
incKned  to  question  the  ultimate  wisdom  of  this  choice  of  alter- 
natives, events  have  made  it  tolerably  clear  that  the  commis- 
sions's  action  was  expedient  under  the  circumstances.  The 
difficulty  met  in  securing  legislative  agreement  upon  the  relatively 
simple  matter  of  the  system  of  percentage  assessment  is  sugges- 
tive of  the  turmoil  that  would  have  followed  the  effort  to  secure 
a  satisfactory  readjustment  of  so  many  local  interests  as  were 
involved  in  the  full  value  and  limited  levy  proposition. 

The  reduction  of  the  legal  basis  of  assessment  to  50  per  cent  of 
full  value  was  recommended  by  the  tax  commission  and  in  at 
least  two  legislative  sessions  bills  to  accomplish  this  purpose  were 
introduced.  In  1909  the  legislature  approved  the  principle  but 
was  unable  to  agree  upon  the  percentage  to  be  adopted,  and  at  the 

*  Minnesota  Tax  Commission,  Report,  1910,  pp.  19,  20;  ibid.,  1912,  p.  102. 
'  Cf.  ch.  10,  above,  and  ch.  13,  below. 


TAX  COMMISSION  OF  MINNESOTA  391 

end  of  the  session  the  commission's  bill  found  itself  "  in  the  legis- 
lative ash  heap."  From  this  obscurity  it  was  rescued  two  years 
later,  dusted  and  furbished,  and  again  offered  for  consideration. 
Two  years  had  only  intensified  the  differences  of  opinion  concern- 
ing the  proper  percentage,  however,  and  a  marked  disposition 
emerged  to  tax  different  classes  of  property  at  varying  propor- 
tions of  full  value,  according  to  their  productive  capacity  and 
according  to  the  degree  of  absentee  or  of  urban  ownership.  The 
house  of  representatives  proposed  to  assess  homesteads  at  33^  per 
cent;  all  other  real  estate  at  50  per  cent;  household  furniture, 
wearing  apparel,  musical  instruments  and  sewing  machines  at 
25  per  cent;  and  all  other  property  at  50  per  cent,  of  full  value.^ 
The  lower  house  was  here  striving,  though  somewhat  blindly, 
against  the  great  paradox  of  the  general  property  tax,  the  in- 
equality of  uniform  taxation ;  but  the  senate  refused  to  concur  in 
the  proposals  for  classification,  and  the  bill  was  again  lost.  On 
at  least  two  occasions,  however,  the  legislature  passed  the  follow- 
ing resolution :  - 

Resolved,  That  the  state  tax  commission  be,  and  is  hereby  requested  to 
take  into  consideration  in  any  regulation  it  may  make  as  to  the  valuation 
of  property  for  taxation,  the  values  which  have  heretofore  been  given  such 
property,  and  that  the  commission  so  act  as  not  to  create  any  radical  changes 
in  the  present  assessed  valuations,  such  as  would  derange  the  relations  which 
have  been  created,  and  now  exist,  between  the  incomes  and  salaries  paid  by 
different  institutions,  municipalities,  and  public  offices  throughout  the  state; 
and  thereby  allow  the  present  relative  values  to  continue  until  the  next 
session  of  the  legislature. 

This  left  the  commission  squarely  planted  "  between  the  devil  and 
the  deep  sea."  The  law,  which  it  was  sworn  to  maintain,  required 
the  assessment  of  all  taxable  property  at  full  value;  but  the  above 
resolution  and  a  multitude  of  legislative  acts  virtually  prohibited 
compliance  with  the  statutory  requirement.  In  reply  to  the  host 
of  inquiries  from  local  officials  and  taxpayers  as  to  the  proper 
percentage  of  true  valuation  to  be  used,  the  commission  could 
only  point  to  the  law  requiring  full  value  and  to  the  resolution 
requesting  no  change,  an  eminently  unsatisfactory  situation. 

'  Minnesota  Tax  Commission,  Report,  191 2,  pp.  106-109. 
*  Ibid.,  1910,  pp.  123,  124;  ibid.,  1912,  pp.  107,  108. 


392  THE  STATE  TAX  COMMISSION 

The  struggle  for  a  change  in  the  basis  of  assessment  ended  in 

1913  with  the  adoption  of  a  law  requiring  the  assessment  of  all 
property  not  otherwise  provided  for  at  varying  percentages  of 
full  value.  1  All  property  subject  to  the  general  property  tax  is  to 
be  assessed  in  four  classes,  as  follows: 

Class  I.  This  class  includes  iron  ore,  mined  and  unmined;  it  is 
to  be  assessed  at  50  per  cent  of  full  value.  If  unmined,  the  ore  is  to 
be  assessed  with  the  land,  but  the  latter  is  to  be  Hsted  as  provided 
below. 

Class  II.  This  group  includes  household  goods  and  furniture, 
together  with  all  articles  actually  used  for  personal  or  domestic 
purposes.   It  is  to  be  assessed  at  25  per  cent  of  full  value. 

Class  III.  Herein  are  grouped  live  stock,  poultry,  all  agri- 
cultural products,  stocks  of  merchandise  with  the  furniture  and 
fixtures  used  therewith,  manufacturers'  materials  and  products, 
tools,  implements,  and  machinery,  and  all  unplatted  real  estate. 
These  forms  of  property  are  to  be  assessed  at  2)2>\  P^r  cent  of  full 
value. 

Class  IV.  This  class  includes  all  other  property,  which  is  to  be 
assessed  at  40  per  cent  of  full  value. 

The  law  does  not  apply  to  mortgages,  which  have  been  subject 
to  a  registry  tax  since  1907, nor  to  moneys  and  credits,  which  were 
placed  under  a  three-mill  tax  in  191 1.  As  enacted,  it  represented 
a  compromise  of  rather  wide  differences  of  opinion,  and  in  its 
entirety  it  probably  satisfied  no  one  completely.^  It  did,  how- 
ever, offer  the  supreme  merit  of  relief  from  the  earlier  embarrass- 
ing dilemma  and  as  such  it  is  to  be  hailed  as  a  distinct  advance. 
For  the  first  time  in  its  history  the  tax  commission  was  able  in 

1 9 14  to  insist  unflinchingly  upon  an  assessment  made  in  full 
conformity  with  the  law. 

The  changes  in  the  basis  of  assessment  opened  the  way  to  such 
a  result.  They  did  not,  however,  insure  automatically  perfect 
equality  of  assessment,  nor  did  they  render  unnecessary  a  careful 
and  painstaking  equalization  of  assessments.    The  possibility  of 

1  Laws  of  Minnesota,  1913,  ch.  483. 

2  Minnesota  Tax  Commission,  Report,  1914,  p.  23.  Also,  Bullock,  "  The  State 
Income  Tax  and  the  Classified  Property  Tax,"  Proceedings  of  the  National  Tax  Con- 
ference, 1916,  pp. 362-384. 


TAX  COMMISSION  OF  MINNESOTA  393 

variations  in  the  actual  basis  of  local  assessments  remained. 
Recognizing  this,  the  commission  has  made  unusual  efforts  since 
1913  to  hold  the  local  assessors  to  their  duty  and  to  check  up  their 
results  with  independent  data  of  values.  The  methods  used  and 
the  results  obtained  in  the  state  equalization  will  be  discussed 
here,  and  the  new  measures  for  supervision  of  the  local  officials 
will  be  taken  up  later  in  connection  with  the  general  topic  of 
supervision.^ 

Equalization 

Full  power  was  given  to  the  tax  commission,  when  acting  as  a 
board  of  equalization,  to  make  any  changes  in  the  valuation  of 
real  or  personal  property  which,  in  its  judgment,  were  necessary 
to  perfect  and  equaUze  the  basis  for  the  equitable  distribution  of 
the  tax  burden  throughout  the  state.  It  happened,  however,  that 
in  1907  and  again  in  1908  the  county  auditors'  abstracts  of  assess- 
ments were  not  returned  in  time  for  consideration  before  the 
stated  meeting  of  the  ex  officio  board  of  equalization,  and  in  con- 
sequence the  entire  work  of  equalization  in  those  years  was  per- 
formed by  this  board,  except  for  the  assessment  and  equahzation 
of  the  iron  mines.  The  first  equalization  undertaken  by  the  com- 
mission, that  of  1909,  did  not  include  real  estate  which  is  assessed 
and  equalized  only  in  the  even  numbered  years. 

The  principal  device  employed  in  the  equalization  of  real 
estate  has  been  the  sales  method,  the  technique  of  which  has  been 
so  fully  developed  in  Wisconsin. ^  Because  of  insufficient  funds 
the  Minnesota  commission  has  not  created  a  special  statistical 
department  to  prepare  these  ratios.  The  field  work  of  collecting 
the  sales  material  is  now  done  by  special  agents  of  the  commission, 
who  observe  in  general  the  same  conditions  as  to  the  eligibility  of 
the  transactions  as  are  laid  down  in  Wisconsin.^  The  records  of 
real  estate  transfers  are  always  submitted  to  men  in  each  county 
who  are  familiar  with  such  transactions,  and  with  their  help  a 
preliminary  elimination  is  effected.  The  ratios  themselves,  cal- 
culated for  platted  and  for  unplatted  lands  in  each  county,  have 

1  Below,  pp.  414  ff.  '  Cf.  above,  ch.  8,  pp.  244  ff. 

'  Minnesota  Tax  Commission,  Report,  1916,  p.  44. 


394  THE  STATE  TAX  COMMISSION 

been  referred  to  the  respective  county  auditors  for  comment  and 
criticism. 

The  lack  of  expert  statistical  assistance  is  more  keenly  felt  in 
the  later  process  of  refining  the  data,  a  process  which  Professor 
Adams  has  held  to  be  of  equal  importance  with  the  field  work.' 
Further,  the  collection  and  analysis  of  the  data  have  not  been 
made  a  continuous  process,  as  in  Wisconsin,  but  have  been  under- 
taken biennially  in  preparation  for  the  real  estate  equalization. 
This  plan  is  open  to  the  disadvantage  that  through  unfamiliarity 
with  such  work  the  results  may  be  somewhat  less  accurate  than 
if  certain  members  of  the  staff  were  continuously  in  touch  with  it. 
The  attempt  to  inspect  a  very  large  mass  of  transactions  in  a 
comparatively  short  time  favors  haste  and  error  in  the  field 
work;  and  the  clerical  organization,  possibly  reinforced  by  new 
members  recruited  especially  for  this  service,  would  lack  the  skill 
in  scrutinizing  and  analyzing  the  reported  data  which  would  come 
only  through  long  familiarity  with  the  material.  On  the  other 
hand,  the  later  sales  ratios  have  been  made  more  reliable  by  the 
inclusion  of  data  covering  a  longer  period  of  time.  In  1908  the 
figures  used  covered  the  sales  for  twelve  months,  scattered 
through  the  preceding  six  years.  In  1910  the  commission  in- 
structed the  county  auditors  to  collect  the  data  for  the  preceding 
two  years,  but  since  191 2  the  sales  for  a  quadrennial  period  have 
been  compiled  by  using,  in  each  case,  the  data  collected  for  the 
two  years  preceding  the  last  equalization.  This  extension  of  the 
sales  period  naturally  causes  the  average  to  lag  behind  the  present 
level  of  values,  a  result  which  was  not  unwelcome  in  making  the 
first  equalizations  of  the  classified  assessment.  The  commission 
has  felt  that  public  confidence  in  the  new  law  would  be  promoted 
by  a  conservative  equalization  of  the  returns.-  While  the  ratios 
have  undoubtedly  been  improving  in  quality  in  recent  years,  for 
the  reasons  mentioned  they  are  probably  not  as  accurate  as 
those  prepared  by  the  statistical  department  of  the  Wisconsin 
commission. 

In  addition  to  the  guide  to  land  values  which  the  sales  ratios 
would  furnish,  the  Minnesota  commission  has  made  use  of  various 

'  T.  S.  Adams,  loc.  cit.         ^  Minnesota  Tax  Commission,  Report,  1916,  p.  45. 


TAX  COMMISSION  OF  MINNESOTA  395 

other  sources  of  information  in  equalizing  real  estate.  The  rapid 
changes  in  land  values  and  the  abnormal  character  of  many  of  the 
sales  in  the  newer  sections  of  the  state  would  naturally  vitiate  to 
a  large  extent  any  comparison  of  stated  consideration  and  assess- 
ment. The  commission  has  made  use  of  its  general  knowledge  of 
the  situation  in  these  sections  as  an  important  check  upon  the 
sales  ratios.  An  equitable  gradation  of  assessments,  though  not 
necessarily  at  full  value,  has  been  promoted  by  the  use  of  a  map 
showing  the  township  boundaries,  by  means  of  which  average 
values  in  adjoining  townships  have  been  smoothed  out.^ 

The  methods  used  in  equalizing  personal  property  before  191 1 
were  admitted  to  be  ineffective.  Per  capita  tests  were  applied  to 
certain  of  the  classes  of  personalty;  while  for  other  classes, 
especially  the  intangibles,  the  cities  were  arranged  in  groups  and 
the  figures  '*  smoothed  out  "  among  the  cities  of  each  group  and 
among  the  groups.  The  only  object  attempted  was  to  place  the 
counties  on  a  basis  of  approximate  equality.-  In  191 2  the  census 
figures  were  used,  but  mainly  for  the  purpose  of  discovering  the 
counties  in  which  the  practice  of  omitting  property  appeared  to  be 
most  prevalent.^ 

The  classification  of  property  in  19 13  opened  the  way  for  a 
strong  positive  stand  on  the  question  of  assessing  personal  prop- 
erty according  to  law.  The  commission's  letters  of  instruction  to 
local  officials  on  this  subject  reveal  the  strong  and  earnest  inten- 
tion of  the  state  tax  ofl&cials  to  secure  a  thorough,  complete,  and 
accurate  assessment  of  this  property.  The  equalization  of  such 
property  is  always  extremely  difficult  and  the  tax  commission  may 
be  pardoned  the  resort  to  somewhat  more  vague  and  general 
methods  than  those  that  have  been  developed  for  real  estate. 
The  Minnesota  commission  has  made  use  of  "  every  available 
test  that  would  throw  fight  upon  the  value  of  such  property,"  but 
the  only  test  specifically  mentioned  in  19 14  was  that  of  requesting 
the  local  public  utilities,  lumber  companies,  pulp  and  paper  com- 
panies, and  banks  to  furnish  complete  and  detailed  reports  of  all 

'  Minnesota  Tax  Commission,  Report,  19 16,  p.  48. 

^  Interview  with  the  commission,  July,  191 1. 

^  Minnesota  Tax  Commission,  Report,  191 2,  pp.  33,  599,  600. 


396  TEE  STATE  TAX  COMMISSION 

personal  property  owned  by  them  in  the  state  on  May  i,  19 14. 
The  request  was  disregarded  by  several  lumber  companies  and  a 
number  of  the  smaller  utilities,  an  attitude  which  the  commission 
properly  construed  as  evidence  of  local  underassessment  in  those 
cases.  ^  It  seems  highly  desirable  that  the  local  assessment  of 
many  forms  of  personal  property  should  be  inspected,  "  sampled  " 
or  otherwise  checked  up,  but  this  has  not  been  possible  in  Minne- 
sota on  account  of  lack  of  funds.  Office  tests  alone  seldom  afford 
a  satisfactory  means  of  checking  up  adequately  the  returns  of 
personalty. 

The  commission  is  gradually  perfecting  its  method  of  dealing 
with  personal  property  in  equalization  and  in  the  report  for  19 16 
occurs  a  more  detailed  discussion  of  this  problem  than  in  any 
previous  report.  A  special  investigation  of  the  logs  and  lumber 
taxable  to  milling  companies  was  made  in  19 15  and  again  in  1916, 
resulting  in  net  gains  for  the  two  years  of  $984,000.  Household 
goods,  grain  and  grass  seed  in  the  hands  of  producers,  and  stocks 
of  foreign  corporations  were  stated  to  be  defectively  assessed.^ 
Had  the  commission  extended  the  sort  of  inquiry  that  was  applied 
in  the  case  of  the  logs  and  lumber,  it  is  entirely  possible  that  the 
list  of  defectively  assessed  items  would  have  been  materially 
increased. 

With  this  review  of  the  commission's  methods  of  equalization, 
attention  will  now  be  turned  to  the  results.  It  is  not  ordinarily 
expected  that  the  state  equalization  should  secure  large  increases 
over  the  local  assessment,  and  there  is  no  intention  to  criticize  the 
results,  in  Minnesota  or  elsewhere,  simply  because  large  increases 
have  not  been  made.  The  equalizing  board's  attitude  toward  the 
local  basis  of  assessment  is  often  reflected,  however,  in  its  own 
treatment  of  the  local  figures,  and  it  is  of  course  evident  that  the 
standards  of  the  local  officials  will  in  turn  be  affected  by  this 
attitude.  Water  does  not  rise  higher  than  its  source.  The  first 
data  to  be  examined  will  be  the  gross  results  of  the  equalization 
of  real  estate. 

1  Minnesota  Tax  Commission,  Report,  1914,  p.  41. 
-  Ibid.,  1916,  pp.  60-66. 


TAX  COMMISSION  OF  MINNESOTA 


397 


Equalization  of  Real  Estate,  1908-16  *  (millions  of  dollars) 


Year 

Local 
assessors 

County 
boards 

Tax  com- 
mission 

Increase, 
CO.  b'ds 

over 
assessors 

Increase, 
tax  com. 

over 
assessors 

Increase, 
tax  com. 

over  CO. 

boards 

IQ08  2 

882.1 

903-9 

975-0 

1,072.3 

1,265.1 

1,346.6 

898.5 
1,062.4 

1,150.4 
1,274.2 
1,369.6 

21.8 

16.5 
107.0 
106  8 

-5-4 
87.4 
78.1 
9.1 
23.0 

lOIO 

955-4 
1,043.6 
1,208.2 

19.6 
28.7 
56.9 
47-9 

1012 

IOI4 

660 

1916 

1,298.7 

70.9 

Inc.  1910  over  1908 .... 

73-3 

71.0 

113.8 

Inc.  191 2  over  1910. .  .  . 

88;  I 

97-3 

137.9 

Inc.  1914  over  1912  .... 

164.6 

192.8 

123.8 

Inc.  1916  over  1914 .... 

90-5 

81.5 

95-4 

It  is  evident  from  the  figures  for  1908  that  the  former  state 
board  of  equalization  had  not  only  completely  ceased  to  be  a 
factor  in  improving  the  basis  of  assessment,  but  that  it  was 
actually  depressing  that  basis,  as  was  charged  by  the  special  tax 
commission  of  1901.  The  aggregate  figures  after  the  state 
equaUzation  in  1908  were  some  $5,400,000  below  the  total  as 
returned  by  the  county  boards,  a  total  which  was  itself  only 
$21,800,000,  or  2.47  per  cent,  above  the  original  assessment.  The 
first  ratios  of  assessed  to  true  value  compiled  by  the  commission 
were  used  only  incidentally  in  this  equalization;  but  taking  them 
as  a  basis,  the  state  as  a  whole  was  assessed  at  43.48  per  cent  of 
full  value. ^  Thirteen  counties  were  above  the  state  average  and 
seventy- two  below  it;  and  of  the  latter,  thirty-one  were  assessed 
between  30  per  cent  and  33  per  cent.  But  the  variations  among 
the  counties  were  quite  extensive,  ranging  from  24.2  per  cent  to 
60.08  per  cent  of  true  value.  It  was  apparent  to  the  commission, 
from  the  compilation  of  results  by  assessment  districts  and  by 
counties,  that  serious  inequalities  existed  between  rural  and  urban 

^  From  the  biennial  reports  of  the  commission.  Since  1914  the  figures  include  the 
ore-bearing  lands,  assessed  at  33I  per  cent  of  full  value.  Iron  ore,  mined  and  un- 
mined,  is  not  included.   The  valuation  of  the  iron  mines  is  discussed  below,  pp.  404S. 

^  The  equalization  of  1908  was  performed  by  the  former  state  board  of  equali- 
zation. 

'  Miimesota  Tax  Commission,  Report,  1908,  pp.  49,  51. 


398  TEE  STATE  TAX  COMMISSION 

property,  between  lands  and  improvements  thereon,  between 
improved  and  wild  lands,  and  between  individual  parcels  of  land. 
For  these  intracounty  inequalities  the  work  of  the  state  board  of 
equaUzation  afforded  no  relief  whatever. 

In  1 910  the  assessors  did  little  more  than  register  natural 
increases  in  property  and  probably  left  untouched  the  basis  of 
valuation.  The  county  boards  lost  ground  as  compared  with 
the  assessors,  while  for  reasons  which  have  already  been  noted, 
the  tax  commission  made  a  very  conservative  equalization  of  the 
local  figures,  adding  the  comparatively  small  sum  of  $87,400,000 
for  the  entire  state,  or  8.9  per  cent.^  This  time  it  was  assumed 
that  the  great  bulk  of  property  had  been  assessed  at  about  one- 
third  of  full  value.  Counties  that  were  too  far  from  this  average 
were  brought  to  it,  though  in  general  as  few  reductions  as  possi- 
ble were  made  and  there  was  no  change  at  all  if  the  county  ratios 
were  within  10  per  cent  of  the  state  average.  The  figures  for  191 2 
show  a  slight  gain  all  along  the  line,  though  the  commission  con- 
fessed to  much  disappointment  in  the  outcome.  The  preparations 
for  a  vigorous  assessment  had  been  extensive,  and  it  appeared 
not  unreasonable  to  expect,  in  view  of  the  natural  growth  of 
property  values,  that  the  figures  established  in  1910  should  be 
maintained.  But  the  local  returns  in  forty-seven  out  of  eighty- 
six  counties  showed  a  dechne  from  the  assessment  of  1910, 
although  increases  by  county  boards  overcame  these  reductions 
in  all  but  nineteen  counties.  The  commission  ordered  increases 
in  each  county,  the  amounts  ranging  from  5  per  cent  to  60  per 
cent.  On  the  other  hand,  its  increases  over  the  county  boards  fell 
off  from  the  advance  made  in  19 10  by  approximately  the  same 
amount  that  those  of  the  latter  rose  above  the  local  figures  of 
1910,  because  of  the  keen  anxiety  not  to  advance  the  aggregate 
assessment  unduly. 

The  results  since  19 14  are  not  strictly  comparable  with  the 
figures  for  former  years,  because  of  the  change  in  the  basis  of 
valuation  through  the  introduction  of  the  system  of  classification. 
Further,  the  method  of  construction  of  the  sales  ratios  since  1914 

1  Cf.  below,  ch.  13,  for  the  phenomenal  increase  made  by  the  Kansas  Tax  Com- 
mission in  its  first  equalization. 


TAX  COMMISSION  OF  MINNESOTA  399 

tended  to  yield  more  conservative  estimates  of  full  value/  a 
result  of  considerable  practical  advantage  in  avoiding  the 
development  of  opposition  to  the  new  tax  measure.  Increases 
were  ordered  in  forty-four  counties,  ranging  from  5  per  cent  to 
20  per  cent  in  towns,  and  5  per  cent  to  25  per  cent  in  cities  and 
villages.  Decreases  of  5  per  cent  to  20  per  cent  for  towns  and  10 
per  cent  to  125  per  cent  for  cities  and  villages  were  ordered  in 
eleven  counties.-  The  net  result  of  these  changes  was  an  increase 
over  the  figures  of  the  county  boards  of  $9,100,000,  an  amount 
which  was  justified  apparently  by  the  much  more  vigorous  action 
of  the  latter  and  by  the  change  in  the  basis  of  valuation.  It  has 
been  suggested  above  that  the  percentage  basis  of  assessment 
would  not  diminish  the  necessity  of  a  careful  and  thorough 
equalization  of  the  local  returns.  The  commission's  experience 
in  1916  appears  to  confirm  this  conclusion.  Action  for  either 
increase  or  decrease  of  the  local  assessment  of  real  estate  was 
taken  in  all  but  nineteen  counties,  with  a  net  increase  of  $23,000,- 
000  over  the  figures  of  the  county  boards.  The  results  of  the  state 
equalizations  of  191 4  and  1916  are  not  published  in  greater 
detail ;  but  on  both  occasions  the  commission  concluded  that,  as 
equalized,  the  assessment  of  the  several  classes  of  real  property 
conformed  as  closely  to  the  statutory  percentages  of  full  value  as 
human  judgment  could  make  it.^ 

Such  tests  of  the  results  as  it  is  possible  to  make  from  the  data 
at  hand  tend  to  confirm  this  conclusion.  They  indicate  also  that 
much  progress  has  been  made  since  1910  toward  more  equitable 
assessments.  The  first  test  is  that  of  a  comparison  of  the  average 
equaUzed  values  since  19 10  with  the  census  valuation  of  farm 
lands  in  1910.     This  is  shown  in  the  table  on  the  next  page. 

This  comparison  aft"ords  only  a  rough  test.  One-third  of  the 
census  average  valuation  is  taken  as  the  basis,  since  lands  have 
been  assessed  approximately  on  that  percentage.  In  1910  the 
commission  evidently  equalized  on  a  somewhat  lower  basis,  with 
larger  numbers  of  counties  in  groups  i  and  4,  and  a  much  smaller 

'  Minnesota  Tax  Commission,  Report,  19 14,  p.  37.    This  was  done  by  taking 
the  average  for  a  quadrennial,  instead  of  an  annual,  period. 
*  Ibid.,  p.  59. 
'  [bid.,  p.  64;   ibid.,  1916,  p.  48. 


400  THE  STATE  TAX  COMMISSION 

Comparison  of  Average  Assessed  Value  of  Farm  Lands,  1910-14,  with 
Census  Average  Value,  1910.    Number  of  Counties  in  Each  Group 

Average  i  of  census        As  equalized,      As  equalized,      As  equalized,  1914 

Group  per  acre  valuation,  1910  1910  1912  i  of  full  value 

1  $3-5.99 12  21  16  IS 

2  6-  8.99 16  14  16  II 

3  9-H.99 IS        16        10         8 

4  12-14.99 19  24  16  10 

5  15-17-99 17  5  20  8 

6  18-20.99 4  2  4  IS 

7  21-23.99 I  o  I  10 

8  24  and  over 2  3  3  9 

Total  counties 86        85  ^       86         86 

number  in  group  5,  than  were  warranted  by  the  census  figures- 
There  were  no  counties  equalized  in  group  7.  In  191 2  there  was 
considerable  progress  toward  the  census  gradation  of  values,  an 
advance  which  may  be  regarded  as  indicating  a  more  equitable 
assessment  of  farm  lands.  The  general  though  uneven  rise  in  land 
values  renders  a  comparison  of  the  figures  for  19 14  with  the  census 
figures  of  little  significance.  It  is  of  interest,  however,  to  note  the 
pronounced  shift  into  the  three  highest  groups. 

The  assessment  of  19 10  was  clearly  not  satisfactory.  The  evi- 
dence to  this  effect  in  the  above  table  is  borne  out  by  the  com- 
mission's own  sales  ratios  for  that  year.  The  ratios  showed  that 
the  southern  counties  were  assessed  on  a  much  lower  basis  than 
the  middle  and  northern  counties.  Seventeen  out  of  thirty-one 
counties  in  the  southern  third  of  the  state  (the  counties  south  of 
the  Minnesota  River)  were  assessed  below  30  per  cent  of  full 
value;  while  only  twenty- two  out  of  fifty-four  counties  north  of 
this  hne  were  assessed  below  that  level.  The  low  counties  were  not 
equahzed  up  to  the  state  average,  which  accounts  for  the  small 
number  in  group  5  of  the  table  above.  According  to  the  census 
figures,  fifteen  of  the  southern  counties  should  have  been  equalized 
in  this  group,  $15.00-$! 7.99,  but  were  actually  equalized  in  lower 
groups.  Five  other  southern  counties  were  placed  in  lower 
groups  than  their  census  valuation  warranted.  On  the  other 
hand,  certain  northern  counties  which  were  assessed  far  above 

*  Pennington  county  omitted  from  commission's  figures  in  :9io. 


TAX  COMMISSION  OF  MINNESOTA  40 1 

the  state  average  were  not  reduced,  though  reductions  were 
made  in  the  case  of  southern  counties.  For  instance,  Redwood 
county,  in  the  southwestern  part  of  the  state,  was  assessed  at 
46.48  per  cent,  and  was  equalized  at  34.86  per  cent.  But  no 
changes  were  made  in  the  following  northern  counties,  with 
higher  ratios  of  assessed  to  true  value:  Cook,  47.45  per  cent; 
Crow  Wing,  47.19  per  cent,  and  Mahnomen,  67.92  per  cent. 
Lake  county  at  45.03  per  cent,  Becker  county  at  43.07  per 
cent,  Cass  county  at  41.79  per  cent,  and  Itasca  county  at  40.33 
per  cent,  were  also  untouched  by  the  commission,  though  Fari- 
bault county  (southern)  was  reduced  from  33.16  per  cent  to  31.71 
per  cent  of  full  value  and  Blue  Earth  county  was  left  at  29.80 
per  cent.  There  is  Httle  doubt  that  in  19 10  the  southern  third 
of  the  state  was  assessed  and  equaUzed  on  a  more  lenient  basis 
than  the  remainder  of  the  state. 

The  ratios  of  assessed  to  true  value  since  1910  are  not  available 
but  the  average  assessed  values  per  acre  have  been  pubHshed.^ 
From  these  figures  it  may  be  seen  that  in  191 2  the  assessors  and 
county  boards  of  many  southern  counties  did  not  make  adequate 
increases  over  19 10.  The  commission  dealt  more  vigorously  with 
the  results,  however,  and  allowed  the  local  figures  to  stand  in  only 
four  of  the  thirty-one  counties  south  of  the  river,  while  this  was 
true  of  twenty- two  counties  north  of  that  line.  In  19 14  the  aver- 
age values  of  the  southern  counties  showed,  in  many  instances,  a 
considerable  increase  over  191 2;  indeed,  so  great  were  these 
increases  that  the  commission  was  compelled  to  reduce  the  local 
figures  in  seven  southern  counties.  The  Red  River  valley  was 
the  scene  of  the  principal  increases  in  the  north.  Surveying  the 
results  since  19 10  as  a  whole,  it  is  clear  that  encouraging  progress 
has  been  made  in  the  direction  of  a  smoother  gradation  of  county 
average  assessed  values  over  the  state. 

It  is  impossible  to  test  the  distribution  of  tax  burdens  between 
rural  and  urban  real  estate,  but  the  use  of  the  sales  ratios  has 
doubtless  furthered  equality  of  this  sort.  It  is  of  some  interest  to 
note,  however,  that  the  changes  in  the  basis  of  assessment  in 

^  Cf.  the  maps  showing  average  assessed  values  per  acre,  Minnesota  Tax  Com- 
mission, Report,  1912,  p.  43;  ibid.,  1914,  p.  63;  ibid.,  1916,  p.  54. 


402  THE  STATE  TAX  COMMISSION 

1 913  resulted  in  shifting  a  portion  of  the  state  tax  from  rural  to 
urban  real  estate,  and  from  the  larger  to  the  smaller  cities.  The 
aggregate  assessment  of  rural  and  urban  realty  since  191 2  are 
here  given: 

Assessment  of  Lands,  Lots  and  Impro\'ements,  191 2-16 '  (millions) 

Farm  lands  Lots 

improve-  improve- 

Year  Acreage  ments  Total  Lots  ments  Total 


1912 $683.8     $67.8     $751.6     $196.6     $202.2 

1914 530-7  73-0  603.7  186.3  214.1  400.4 

1916 575-1  82.5  657.6  198.9  233.4  432.3 

The  assessed  value  of  rural  real  estate  is  seen  to  have  decHned 
from  about  70  per  cent  of  the  total  in  191 2  to  60.1  per  cent  in 
1 914.  This  percentage  was  sustained  in  1916.  The  effect  of  this 
decline  is  to  shift  a  greater  proportion  of  the  tax  burden  to  urban 
property.  In  the  actual  assessment  rural  property  is  further 
favored  by  the  universal  practice  of  neglecting  structures  in  the 
rural  districts.  The  farm  is  valued  as  a  whole  and  only  a  nomi- 
nal allowance,  if  any,  is  made  for  buildings  and  other  farm 
improvements.  2 

It  was  quite  evidently  the  intention  of  the  legislature  to  favor 
the  rural  taxpayers  in  the  classification  law  of  19 13.  As  Professor 
Bullock  has  pointed  out,  the  assessment  of  unplatted  real  estate 
at  33^  per  cent,  platted  real  estate  at  40  per  cent,  and  iron  ore  at 
50  per  cent  of  full  value  means  that  urban  realty  is  taxed  about 
20  per  cent  more  than  rural  for  state  and  county  purposes,  while 
iron  ore  is  taxed  50  per  cent  more  than  rural  realty  and  25  per 
cent  more  than  urban  real  estate.^  The  rural  element,  dominant 
in  the  legislature,  placed  their  own  interests  first,  those  of  their 
city  neighbors  second,  and  those  of  the  mine  owners  last  and  a 
long  way  behind. 

The  problem  of  correcting  real  estate  assessments  involves  only 
one  variable,  the  basis  of  assessment.  The  quantity  of  land  is 
fixed,  and  there  is  small  opportunity  of  scaling  down  the  area  to  be 
listed,  or  for  evasion.    But  in  the  assessment  and  equaUzation  of 

'  From  the  biennial  reports  of  the  commission. 

"^  Minnesota  Tax  Commission,  Report,  1916,  pp.  52,  53. 

^  Bullock,  loc.  cil.,  pp.  370,  371. 


TAX  COMMISSION  OF  MINNESOTA  403 

personal  property  there  are  two  variables  —  quantity  and  value. 
For  this  reason  it  is  exceedingly  difficult  to  correct  a  defective 
assessment  by  equalization.  There  is  a  much  better  prospect  of 
securing  equitable  results  through  supervision  of  the  original 
assessment,  with  the  authority  to  order  reassessments  when 
necessary.  The  detailed  changes  in  the  personal  property  assess- 
ment will  be  considered,  therefore,  in  connection  with  the  discus- 
sion of  the  commission's  supervisory  powers.  At  this  point  it  will 
suffice,  perhaps,  to  recall  that  the  methods  used  in  equalizing 
personal  property  previous  to  19 14  had  been  quite  superficial.^ 
The  equalization  data  which  are  pubhshed,  by  their  very  detail, 
prove  this  inadequacy.  The  commission  ordered  a  definite  per 
cent  of  increase  or  decrease,  by  items  of  property,  for  counties 
and  even  for  tax  districts,^  but  the  very  number  of  detailed  per- 
centage changes  proves  too  much.  The  pubhshed  reports  contain 
no  specific  information  as  to  the  character  of  the  data  upon  which 
a  large  proportion  of  these  corrections  of  the  local  tax  rolls  have 
been  made,  and  it  seems  highly  probable  that  the  equahzation  of 
most  classes  of  personal  property  has  always  involved  a  liberal 
proportion  of  guesswork. 

The  proportion  of  the  tax  burden  falHng  upon  personal  prop- 
erty has  depended  upon  the  severity  of  the  equahzation.  This 
proportion  of  personal  to  total  property  as  assessed  and  equalized 
is  shown  below :  ^ 

Percentage  of  Personal  to  Total  Property 

As  equalized 
As  assessed  by  By  county  By  state  tax 

Year  local  assessors  boards  commission 

1908 17.3  20.9  21.6 

1910 16.6  20.8  19.7 

1912 16.5  19.6  18.8 

1914 lS-2  14-9  15-2 

1916 15.0  14.7  14.9 

The  decUning  efficiency  of  the  local  assessment  in  reaching  per- 
sonal property  is  shown  by  the  steady  though  gradual  decrease  in 

1  Cf.  above,  pp.  395,  396. 

*  The  detailed  percentage  changes  for  each  tax  district  and  class  of  property  are 
published  in  the  biennial  reports. 

'  From  the  biennial  reports  of  the  commission. 


404  THE  STATE  TAX  COMMISSION 

the  proportion  of  personal  to  total  property  returns.  In  1908  the 
tax  commission  took  a  somewhat  more  vigorous  stand  than  the 
county  boards,  but  in  1910  and  again  in  191 2  the  state  equaliza- 
tion resulted  in  actually  reducing  the  proportions  estabHshed  for 
personal  property  in  the  county  equahzation.  This  result  was 
really  due  to  the  commission's  superior  methods  of  equalizing  real 
estate  and  not  to  an  actual  reduction  of  the  county  totals.  The 
equalized  percentages  for  19 14  and  191 6  indicate  that  the  county 
and  state  officials  were  impressed  with  the  necessity  of  recogniz- 
ing, in  the  equalization,  the  concession  which  the  law  of  1913 
made  to  personal  property.  The  local  assessors,  on  the  other 
hand,  displayed  the  inertia  so  characteristic  of  such  officials. 
With  many  classes  of  personal  property  admittedly  under- 
assessed, it  would  hardly  arouse  the  assessors  to  greater  efforts 
to  learn  that  the  equalized  totals  in  19 16  shaded  below  the 
proportion  which  they  gave  to  personal  property  in  the  original 
assessment. 

Assessment  and  Equalization  of  the  Iron  Mining 
Properties 

While  the  Minnesota  tax  commission  was,  until  19 14,  the 
victim  of  circumstance  in  equalizing  property  assessed  under 
general  laws  and  was  consequently  forced  to  temporize,  and 
finally  to  secure  a  fractional  basis  of  assessment,  it  was  able  to 
rise  above  circumstances  in  the  assessment  and  equalization  of  the 
ore  properties;  and  its  treatment  of  this  difl&cult  problem  has 
been  marked  by  vigorous  methods  and  encouraging  results.  In 
the  case  of  other  property,  virtually  nothing  was  done  to  raise  the 
basis  of  assessment;  and,  indeed,  many  serious  obstacles  were 
encountered  in  the  way  of  any  advance.  But  the  assessments  of 
mining  property  have  been  enormously  increased,  notwithstand- 
ing the  fact  that  every  argument  urged  against  higher  valuations 
for  the  remainder  of  the  state  applied  as  well  in  the  ore-producing 
counties.  The  mine  assessments  were  increased,  notwithstanding 
debt  Hmits,  tax  levies,  and  local  salaries  based  on  the  old  level  of 
assessments.  The  real  reason  for  this  difference  in  treatment  is  to 
be  found  in  the  state  of  public  opinion.    This  all-powerful  force 


TAX  COMMISSION  OF  MINNESOTA  405 

would  not  tolerate  higher  valuation  of  general  property,  and  the 
commission  stood  still;  it  demanded  higher  assessment  of  the  ore 
property,  largely  foreign-held,  and  the  commission  acted  with 
vigor  and  effectiveness  despite  the  perils  of  extravagance  to  which 
its  action  exposed  the  ore  counties.  The  consistency  with  which 
this  tax  policy  toward  the  iron  mines  has  been  maintained  is 
shown  by  the  treatment  of  this  property  in  the  classification  law 
of  1 913.  The  iron  ore  properties  are  now  legally  subject  to  higher 
taxation  than  anything  else  in  the  state.  This  is  another  illus- 
tration of  the  unfortunate  principle  upon  which  the  Minnesota 
law  of  1913  is  based  —  classification  according  to  ownership 
rather  than  according  to  the  taxable  capacity  of  the  property.^ 
It  is  hard  to  see  how  a  law  written  in  such  a  spirit  can  do  other 
than  foster  the  spirit  of  discrimination  in  taxation. 

It  is  not  to  be  inferred  that  the  problem  of  equitable  assess- 
ment of  the  ore  properties  was  not  approached  by  the  commission 
in  all  earnestness  and  sincerity.  There  is  Uttle  doubt  that  the 
situation  demanded  serious  attention,  for  the  mining  properties 
were  unquestionably  assessed  on  a  lower  basis  than  the  remainder 
of  the  state.  The  advance  of  these  assessments  to  the  state 
average  subjected  the  ore  counties,  therefore,  to  all  of  the  perils 
against  which  the  remainder  of  the  state  was  carefully  shielded; 
and  yet,  such  was  the  state  of  pubHc  opinion  that  the  incongruity 
of  the  general  attitude  on  the  question  of  full  valuation  was  not 
perceived,  indeed  not  suspected. 

The  results  of  local  valuation  of  the  ore  properties  very  well 
illustrate  the  chaos  into  which  local  assessors  so  often  fall  when 
attempting  to  deal  with  a  problem  far  bejdnd  their  grasp  or 
capacity.   The  commission  described  the  situation  as  follows :  ^ 

The  attempts  of  assessors  to  value  iron  ore  properties  were  accompanied 
by  complaints  of  inequalities  among  iron  mine  owners  that  finally  created 
a  sort  of  de  facto  board  of  equalization,  which  determined  the  value  of  the 
diflferent  operating  mines  according  to  output.  .  .  .  Every  two  years  the 
mining  representatives  met  at  Duluth  and  distributed  the  real  property 
assessment  over  the  operating  mines,  according  to  their  output.  The  small 
mines  were  the  losers  and  the  larger  and  more  valuable  mines  the  gainers  by 
this  method  of  valuation.  .  .  .  Prior  to  1907  the  tonnage  tax,  and  after 

1  Cf.  Bullock,  loc.  cit.,  pp.  370,  371. 

*  Minnesota  Tax  Commission,  Report,  1908,  p.  1 14. 


406  THE  STATE  TAX  COMMISSION 

that  date  the  valuations,  continually  shifted  with  the  growth  of  the  prop- 
erties, and  the  distribution  to  mines  according  to  output  prevented  the 
establishment  of  any  principle  of  local  assessment. 

Self-assessment  has  not  been  an  uncommon  thing  in  the  history  of 
corporate  taxation,  but  it  is  rather  unusual  —  though  hardly 
surprising  under  the  circumstances  —  to  see  the  property  owners 
so  completely  superseding  the  assessors. 

The  commission's  attention  was  directed  to  the  problem  of 
mine  taxation  in  1907  by  various  resolutions  passed  by  the  legis- 
lature, demanding  an  investigation.  ^  The  attorney-general  ruled 
that  the  commission  had  the  power,  under  the  sections  relating  to 
equahzation,  to  revalue  real  estate  in  the  odd-numbered  years  and 
it  proceeded  at  once  to  deal  with  the  mine  assessments.  By 
means  of  numerous  conferences  with  mine  owners  and  mining 
experts  and  a  questionnaire,  the  form  of  which  had  been  prepared 
after  a  preliminary  study  of  the  situation,  the  commission  arrived 
at  a  classification  of  ore  properties  and  formulated  the  rates  to  be 
applied  to  each  class.  The  state  inspector  of  mines  and  other 
mining  experts  gave  assistance  in  the  earlier  investigations,  and 
the  first  tonnage  estimates  were  compiled  from  the  blue  prints  of 
explorations  made  by  owners  and  prospectors. ^  Since  1909  the 
State  School  of  Mines  has  provided  expert  assistance  in  estimat- 
ing tonnage.  Thorough  exploration  has  been  conducted  by  drill- 
ing and  test-pitting  and  the  very  complete  records  which  have 
been  made  of  these  surveys  show  grades,  tonnage,  and  classifica- 
tion of  the  ore.^  The  development  of  the  industry  requires  a 
continual  readjustment  of  the  tonnage  estimates  as  new  ore 
bodies  are  discovered  and  as  known  reserves  are  brought  to  the 
stage  of  producing  mines.* 

The  properties  have  been  grouped  as  active  mines  and  reserves 
and  each  group  is  subdivided  into  classes  according  to  the  geolog- 

*  Minnesota  Tax  Commission,  Report,  1908,  pp.  no,  in. 

^  The  Report  for  1908,  ch  8,  contains  a  detailed  description  of  the  procedure.  In 
4  months  the  commission  had  data  on  262  properties,  with  known  tonnage  of 
1,192,509,757. 

^  Minnesota  Tax  Commission,  Report,  1910,  p.  89;  ibid.,  1912,  pp.  58-100. 

*  Ibid.,  1914,  p.  106.  Much  time  was  spent  in  1914  in  estimating  the  quantity 
and  quality  of  ore  in  a  new  range. 


TAX  COMMISSION  OF  MINNESOTA 


407 


ical  conditions,  the  difficulty  of  mining,  and  the  character  of  the 
ore.  The  data  compiled  by  the  experts  from  the  State  School  of 
Mines  form  the  basis  for  arranging  the  tonnage  by  groups  and 
classes,  and  the  principal  problem  before  the  tax  commission  is 
that  of  estabhshing  the  proper  rates,  or  values  per  ton,  for  each 
class.   These  values  have  been  determined  by  several  factors:  ^ 

1.  The  difference  between  the  cost  of  mining  and  the  average  price  of 
ore  during  the  last  three  years. 

2.  By  the  present  worth  of  the  difference  for  a  period  of  twenty  years  on 
a  basis  of  four  per  cent  rate  of  interest. 

3.  By  the  percentage  of  the  assessed  valuation  of  real  property  in  the 
state  to  the  full  value  of  such  property. 

In  further  explanation  of  the  rates  the  commission  said :  ^ 

The  fact  that  the  differences  in  mining  cost  vary  greatly  with  the  different 
properties,  due  to  management,  condition  of  the  mine,  presence  of  water, 
depth  of  ore,  character  of  equipment,  grades  and  location  of  ores,  required 
the  creating  of  more  than  one  class  of  mining  properties.  .  .  .  The  rates 
established  for  them  (i.  e.,  the  several  classes)  were  determined  as  far  as 
possible  by  the  differences  between  mines  in  cost  of  operation,  difficulty  of 
mining,  and  grade  of  ore. 

The  results  for  the  period  1906-16  are  presented  in  the  table 
below : 


Comparative  Summary  of  Tonnage  and  Valuation,  1906-16' 
(000,000  omitted) 


Total  tonnage 
Year  (tons) 

1906 

1907 1,191.9 

1908 1,193.2 

1909 1,310.2 

1910 1,347-6 

19" 1,367.5 

1912 1,401.3 

1913 1,406.5 

1914 1,468.6 

1916 1,475-6 


Valuation  of  ton- 
nage assessed 


$186.1 

174.3 
199.0 
220.4 
231.6 
254.0 

255-1 
269.6 

277-3 


Valuation  of 

other  lands  in 

iron  zone 


Total  assessed 
valuation 

$64.5 

191.7 

180.2 

204.5 

224.7 

235-8 

2394 

255-1 

269.6 

279.8 


'  Minnesota  Ta.x  Commission,  Report,  1908,  p.  121. 

2  Ibid. 

'  Compiled  from  the  biennial  reports.  The  valuation  in  1913  and  1914  did  not 
include  the  other  ore  lands  in  the  iron  producing  region.  Figures  for  1915  were  not 
published. 


408  THE  STATE  TAX  COMMISSION 

The  valuation  of  the  tonnage  is  the  assessed  valuation.  Pre- 
vious to  1913  this  valuation  was  made  on  the  basis  of  the  average 
assessment  throughout  the  state.  Since  19 13  the  figures  above 
have  represented  50  per  cent  of  the  true  value  as  determined  by 
the  commission.  The  self-imposed  assessment  of  1906  was  quite 
evidently  a  purely  nominal  amount  upon  which  the  mine  owners 
agreed  to  pay  taxes.  The  steady  increase  in  the  valuation  has 
been  due  to  the  growth  of  the  tonnage  estimates  and  to  advances 
in  the  market  rates  applied.  The  latter  were  raised  5  per  cent  in 
1 9 10,  191 2,  and  19 14,  respectively,  the  last  increase  being  con- 
sidered necessary  in  order  to  bring  the  ore  assessments  to  the 
legal  basis  of  50  per  cent  of  full  value. ^ 

The  Administeation  of  Corporation  Taxes 

Gross  Earnings  Taxes.  —  The  introduction  of  the  gross  earn- 
ings method  of  corporate  taxation  dates  to  1873,  when  this  system 
was  first  applied  to  the  railroads. ^  By  1907  it  had  been  extended 
to  telephone,  freight  line,  express  and  insurance  companies;  and 
sleeping  car  companies  had  been  given  an  option  between  the 
gross  earnings  tax  and  an  ad  valorem  assessment  by  the  tax  com- 
mission. The  latter  has  strongly  favored  further  extension  of  this 
form  of  taxation,  and  would  gladly  see  it  applied  to  all  of  the 
public  service  corporations.  Indeed,  so  great  has  been  the  com- 
mission's preference  for  the  gross  earnings  principle  that  it  has 
suggested  the  use  of  this  method  for  mercantile,  and  even  for 
some  classes  of  manufacturing  corporations.^  The  only  changes 
that  have  been  made  since  1907,  however,  have  been  the  removal 
of  the  option  allowed  to  sleeping  car  companies,  and  the  taxation 
of  trust  companies  not  doing  a  banking  business  on  their  gross 
earnings.  On  the  other  hand,  telegraph,  street  railway,  electric 
light  and  power,  and  gas  companies  are  still  assessed  locally 
under  the  ad  valorem  method. 

The  commission's  duties  in  connection  with  the  gross  earnings 
taxes  were  of  little  importance  previous  to  19 13.    Railroad  com- 

^  Cf.  Minnesota  Tax  Commission,  Report,  1914,  p.  82. 

*  Special  Laws  of  Minnesota,  1873,  ch.  iii. 

'  Minnesota  Tax  Commission,  Report,  1908,  p.  96. 


TAX  COMMISSION  OF  MINNESOTA  409 

panics  made  their  return  of  gross  earnings  to  the  raihoad  and 
warehouse  commission;  freight  Hne  companies  to  the  auditor; 
and  telephone  companies  to  the  treasurer.  This  diversified  prac- 
tice was  ended  in  19 13  by  a  law  which  placed  the  tax  commission 
in  general  charge  of  all  gross  earnings  taxes.  ^  Subject  to  the  com- 
mission's approval  the  public  examiner  is  now  required  to  pre- 
scribe all  forms  for  the  return  of  gross  earnings  and  a  uniform 
system  of  accounting  for  the  determination  of  such  gross  earnings. 
The  tax  commission  receives  and  files  all  reports,  verifies  them, 
calculates  the  taxes  due,  and  certifies  the  amount  to  the  state 
auditor.  This  ofiicial  writes  his  drafts  for  the  amounts  due  and 
places  them  with  the  treasurer  for  collection. 

The  most  interesting  question  in  connection  with  corporate 
taxation  in  Minnesota  is  the  operation  of  the  gross  earnings  tax, 
the  extension  of  which  the  commission  has  steadily  recommended. 
In  its  report  for  1911-12  it  took  up  the  cudgels  in  vigorous 
defense  of  this  method  of  taxing  railroads,  with  especial  emphasis 
upon  the  defects  of  the  ad  valorem  system  as  applied  by  the  Wis- 
consin commission.^  Particular  stress  was  laid  upon  the  weak 
point  of  ad  valorem  taxation,  the  private  oflEice  valuation;  and 
the  telling  point  was  made  that  after  all,  the  Wisconsin  commis- 
sion, by  its  own  admissions,  had  been  compelled  to  rely  almost 
entirely  upon  railroad  figures,  a  practice  which  had  been  cited 
as  a  leading  objection  to  the  gross  earnings  tax.^  Further,  the 
Wisconsin  commission  had  been  capitalizing  net  earnings,  a 
practice  which  was  declared  to  afford  "  the  least  certain  basis 
for  state  taxation,  being  practically  impossible  of  ascertain- 
ment for  individual  roads  within  state  boundaries  and  there- 
fore offering  the  greatest  opportunity  for  manipulation,  fraud 
and  injustice."  * 

The  reply  of  the  Wisconsin  commission  to  these  criticisms  has 
already  been  noted.  ^    There  is  no  denial  of  the  essential  issue, 

*  Laws  of  Minnesota,  1913,  ch.  487. 

^  Minnesota  Ta.x  Commission,  Report,  191 2,  ch.  14.    This  chapter  was  written 
by  Professor  E.  V.  Robinson  of  the  University  of  Minnesota. 
'  Cf.  Snider,  op.  cit.,  p.  28. 

*  Minnesota  Tax  Commission,  Report,  191 2,  p.  209. 
'  Cf.  above,  pp.  255,  256,  284,  285. 


41 0  THE  STATE  TAX  COMMISSION 

though  the  Minnesota  commission  quite  evidently  overempha- 
sized certain  statements  of  the  former  without  due  regard  to  all 
of  the  qualifying  statements  and  circumstances.  The  valuation 
is  no  longer  "  private  "  in  the  arbitrary  or  star-chamber  sense, 
for  the  railroads  are  quite  fully  informed  now  as  to  its  details; 
and  the  capitalized  net  earnings  form  only  one  of  many  factors  in 
the  ultimate  valuation.  ^ 

Furthermore,  notwithstanding  this  severe  castigation  of  the  ad 
valorem  system,  the  Minnesota  commission  has  more  than  once 
made  use  of  this  method  in  order  to  test  the  justice  of  the  rates 
levied  upon  gross  earnings.  In  1908  the  taxes  that  would  have 
been  paid  on  an  ad  valorem  basis  were  compared  with  the  taxes 
actually  paid  at  4  per  cent  on  gross  earnings.  The  basis  for  the  ad 
valorem  valuation  was  first,  figures  suppUed  by  the  railroads 
themselves,  and  second,  an  elaborate  independent  investigation 
into  reproduction  and  present  values  conducted  by  the  railroad 
and  warehouse  commission. ^  The  gross  earnings  tax  yielded,  in 
1907,  approximately  $1,181,000  less  than  might  have  been 
expected  from  the  ad  valorem  valuation  at  the  average  rate  of 
taxation.  A  similar  calculation  was  made  in  191 2,  and  again  it 
was  found  that  the  4  per  cent  rate  on  gross  earnings  was  yielding 
considerably  less  than  the  estimated  return  on  the  minimum 
valuation  established  by  the  commission.  The  conclusion  of  the 
whole  matter  was  that  inasmuch  as  these  tests  indicated  that  the 
railroads  were  being  unduly  favored  by  the  4  per  cent  rate,  that 
rate  should  be  advanced  to  5  per  cent.^  This  recommendation  was 
accepted  by  the  legislature  and  ratified  by  the  people  in  191 2,  the 
constitution  having  required  since  187 1  that  any  change  in  the 
rate  of  taxation  on  gross  earnings  should  be  approved  by  a 
majority  of  those  voting  at  a  regular  election.'*  In  view  of  this  use 

*  Cf.  T.  S.  Adams,  "  The  Valuation  of  Railway  Property  for  Purposes  of  Taxa- 
tion," Joitr.  of  Pol.  Econ.,  xxiii,  p.  i.  January,  1915.  On  pp.  10-12  of  this  article 
Professor  Adams  states  the  reasons  which  led  to  his  conversion  to  the  ad  valorem 
system  of  corporate  taxation. 

^  Cf.  Minnesota  Tax  Commission,  Report,  1908,  p.  91;  also,  Railroad  and  Ware- 
house Commission,  Report,  1908,  pp.  19-47;  also,  Report  of  D.  C.  Morgan,  Engineer, 
on  the  Minnesota  Railroad  Appraisal  of  1907. 

^  Minnesota  Tax  Commission,  Report,  191 2,  pp.  4,  235,  244. 

*  Constitution  of  Minnesota,  Art.  IV,  §  31. 


TAX  COMMISSION  OF  MINNESOTA  41I 

of  the  "private  office  valuation,"  based  in  considerable  degree 
upon  railroad  figures,  for  the  purpose  of  testing  the  equity  of  the 
railroad  tax  burden  under  the  gross  earnings  system,  the  com- 
mission's criticisms  of  the  ad  valorem  method  in  another  state 
were  hardly  consistent.' 

The  constitutional  requirement  of  popular  approval  for 
changes  in  the  rate  on  gross  earnings  is  doubtless  a  protection 
against  hasty  and  unwarranted  action ;  but  it  renders  very  diffi- 
cult any  modification  of  the  rate  for  the  purpose  of  keeping  rail- 
road taxes  equalized  to  approximately  the  same  burden  as  that 
imposed  upon  other  property.  For  example,  in  1901,  the  legisla- 
ture submitted  an  amendment  to  change  the  rate  from  3  per  cent 
to  4  per  cent.  The  amendment  was  defeated  in  1901,  but  was 
finally  accepted  in  1904.-  The  commission  began  in  1907  the 
agitation  for  a  further  increase  of  the  rate.  Two  bills  for  this 
purpose  failed  of  consideration  by  the  legislature  in  1909 ;  and  the 
legislature  of  191 1  refused  to  grant  the  proposed  increase  to  5 
per  cent  though  this  rate  was  finally  accepted  in  the  special  session 
of  1912.^  Thus,  after  five  years  of  eff'ort,  and  three  campaigns 
before  the  state  legislature,  the  commission  succeeded  in  obtaining 
a  change  in  the  rate  levied  on  gross  earnings. 

It  seems  clear  that  such  difficulty  as  has  been  twice  experienced 
in  changing  the  Minnesota  tax  rate  opens  the  system,  as  applied  in 
that  state,  to  the  serious  charge  of  inflexibility  and  inelasticity,  a 
defect  which  can  only  be  corrected  by  a  constitutional  amend- 
ment. A  comparison  of  the  railroad  tax  with  the  state  direct  tax 
on  general  property  throws  light  upon  the  question  of  the  fiscal 
adequacy  of  the  gross  earnings  tax,  and  sustains,  in  a  measure,  the 
suggestion  of  rigidity. 

In  the  first  place,  the  railroad  taxes  have  been  much  more  vari- 
able than  the  direct  tax  on  property.  The  dependence  of  the 
former  upon  the  gross  earnings  of  railroads  naturally  introduces 

1  In  its  recommendation  of  1914  for  the  extension  of  the  gross  earnings  principle 
the  commission  advised  that  the  tax  rates  adopted  be  such  as  would  yield  as  much, 
or  more,  revenue  than  at  present  obtained  under  ad  valorem  taxes.  Minnesota  Tax 
Commission,  Report,  1914,  p.  5. 

*  Minnesota  Tax  Commission,  Report,  1908,  p.  85. 

'  Ibid.,  1908,  p.  221;   ibid.,  1910,  p.  9;  ibid.,  1912,  p.  4. 


412  THE  STATE  TAX  COMMISSION 

Gross  Earnings  Tax  on  Railroads  and  Direct  State  Tax  on 
Property,^  1907-16  (000  omitted) 

General  General 

Year  Railroads       property  Year  Railroads       property 

1907 $3,270  $2,508  1912 $3,728  $4,194 

1908 3,425  3,335  1913 4,325  4,640 

1909 2,972  3,523  1914 5,775  6,143 

1910 4,458  3,252  1915 5,004  6,965 

1911 4,458  3,253  1916 5,436  6,311 

the  possibility  of  considerable  fluctuation  on  account  of  local  or 
nation-wide  business  conditions.  Since  these  fluctuations  in  the 
tax  yield  are  to  a  large  extent  unpredictable  and  altogether 
uncontrollable  without  a  change  in  the  rate,  they  impair  greatly 
the  usefulness  of  the  gross  earnings  tax  as  a  dependable  source  of 
state  revenue.  Further,  these  figures  show  that  the  railroads  are 
favored  in  taxation  in  a  way  that  property  taxed  under  general 
laws  is  not  favored.  The  fluctuations  in  the  taxes  paid  by  the 
railroads  register  the  variations  in  the  volume  of  gross  earnings, 
and  thus  the  wind  is  tempered  to  the  shorn  lamb ;  but  no  benefi- 
cent providence  watches  over  those  who  contribute  to  state 
expenses  under  the  general  property  tax.  Rather,  the  deficiencies 
of  the  gross  earnings  tax  must  be  covered  by  increased  receipts 
from  general  property.  The  commission's  remedy  for  this  situa- 
tion is  to  reduce  public  expenditures  in  times  of  business  depres- 
sion. But  this  is  certainly  giving  stones  for  bread,  for  its  own 
investigations  into  the  cost  of  government  in  Minnesota  have 
revealed  a  tendency  for  public  expenditures  to  increase  much 
faster  than  the  increase  of  population. ^  So  rapid  has  been  this 
increase  of  public  expenses  that  the  5  per  cent  rate  on  gross  earn- 
ings did  not  prevent  a  very  heavy  increase  of  the  direct  state  tax 
in  1914  and  1915. 

Finally,  the  gross  earnings  tax  is  open  to  the  serious  objection 
of  regression  when  applied  to  corporations  with  widely  varying 
operating  ratios.  Railroad  operating  ratios  are  notably  diver- 
gent, as  the  data  published  by  the  Interstate  Commerce  Com- 

'  Compiled  from  the  biennial  reports  of  the  Tax  Commission. 
2  Minnesota  Tax  Commission,  Report,  1914,  ch.  8,  "  The  Cost  of  Government 
in  Minnesota." 


TAX  COMMISSION  OF  MINNESOTA  413 

mission  clearly  show.^  In  Wisconsin,  according  to  Professor 
Adams,  normal  operating  expenses  range  from  30  per  cent  to 
more  than  75  per  cent  of  gross  earnings.  A  flat  gross  earnings 
tax  means  therefore  a  heavier  real  rate  of  taxation  as  the  pro- 
portion of  expenses  to  earnings  increases,  that  is,  as  the  real 
ability  to  pay  decreases.  The  ad  valorem  system  does  appear 
to  offer  a  better  opportunity  than  does  the  gross  earnings  system 
for  the  distribution  of  the  tax  burden  among  the  corporations 
in  accordance  with  their  tax-paying  ability. 

Other  Corporation  and  Business  Taxes.  —  Little  headway  has 
been  made  in  developing  central  control  over  the  taxation  of  cor- 
porations by  other  means  than  the  gross  earnings  system.  To 
the  present  the  only  corporations  assessed  directly  by  the  tax 
commission  are  the  telegraph  companies.  The  property  of  each 
company  is  valued  as  a  unit  and  is  taxed  at  the  average  state  rate 
for  state  purposes. ^ 

The  owners  of  steam  and  other  vessels  hailing  from  ports  in  the 
state,  whether  corporations  or  not,  are  required  to  report  to  the 
state  auditor  the  registered  tonnage  of  their  vessels.  The  tax  of 
three  cents  per  net  ton  capacity  is  divided  equally  between  the 
state  treasury  and  the  port  of  hail  of  such  craft.^ 

The  Minnesota  tax  law  has  long  contained  a  provision  for  the 
taxation  of  the  franchises  of  ordinary  business  corporations.^  The 
taxable  valuation  is  to  be  determined  by  deducting  the  aggregate 
value  of  the  real  and  personal  property  from  the  actual  value  of 
the  capital  stock.  Administration  of  this  provision  is  left  entirely 
to  the  local  assessors  and  the  returns  are,  of  course,  purely  nomi- 
nal. The  attempt  was  made  in  1913  to  vitaUze  this  section  by 
including  indebtedness  with  the  capital  stock  in  determining 
aggregate  capitalization.  The  bill  failed  to  pass,  although  it  had 
the  support  of  the  tax  commission.^  It  is  doubtful  whether  in  this 
form  it  would  have  accomplished  any  material  improvement. 

^  Cf .  the  data  in  the  Interstate  Commerce  Commission's  annual  Statistics  of  the 
Railways  of  the  United  States. 

*  Minnesota  Tax  Commission,  Report,  1914,  p.  13. 
'  Tax  Laws  of  Minnesota,  ed.  of  1908,  §  299. 

*  Ibid.,  §  46. 

^  Minnesota  Tax  Commission,  Report,  19 14,  pp.  5,  6. 


414  THE  STATE  TAX  COMMISSION 

Whether  the  commission  has  endeavored  to  secure  better  local 
administration  of  the  assessment  of  "  corporate  excess  "  is  not 
known;  but  there  is  no  reason  to  believe  that  any  material  im- 
provement in  the  situation  would  come  from  the  inclusion  of  the 
bonded  debt.  This  inclusion  should,  of  course,  be  made;  but 
without  central  administration  the  whole  law  would  undoubtedly 
remain  largely  ineffective. 

Supervision  of  the  Local  Officials 

The  Minnesota  law  of  1907  went  farther  than  many  of  those 
which  had  been  passed  prior  to  that  time  in  other  states  in  the 
scope  of  supervisory  powers  which  it  bestowed  upon  the  tax  com- 
mission. From  the  point  of  view  of  performance  these  powers  and 
duties  may  be  arranged  in  two  groups:  first,  those  the  perform- 
ance of  which  was  obligatory  upon  the  commission,  and  second, 
those  the  exercise  of  which  was  discretionary  with  it.  The  former 
included  principally  the  routine  duties,  such  as  visits  to  the  coun- 
ties, the  issue  of  instructions  and  blank  forms,  control  over  local 
officials  in  such  matters  as  reporting  desired  information,  and 
investigation  of  complaints.  The  latter  included  the  more  im- 
portant powers  of  ordering  reassessments  and  instituting  removal 
proceedings  against  the  delinquent  assessors. 

Until  the  basis  of  valuation  was  changed  in  1913  the  commis- 
sion performed  its  routine  obligations,  but  made  comparatively 
little  use  of  its  more  valuable  discretionary  powers.  That  is  to 
say,  the  proper  blanks  and  forms  were  prepared,  the  biennial  tour 
of  the  counties  was  made,  and  circular  letters  of  instructions  were 
issued  to  local  officials.^  These  letters  took  the  place  of  the  pam- 
phlets of  instructions  which  have  usually  been  issued  by  tax  com- 
missions. As  would  be  natural  in  a  briefer  communication,  the 
emphasis  in  these  letters  was  upon  the  appeal  to  duty  rather  than 
upon  the  instructions  for  the  performance  of  that  duty,  although 
under  the  circumstances  but  little  could  have  been  expected  of 
either.  The  necessity  of  obeying  the  popular  demand  for  valua- 
tion at  the  customary  level  was  not  to  be  overcome  by  any  mere 

'  Cf.  Copies  of  these  letters  in  Report,  1910,  pp.  28-30;  ibid.,  1912,  pp.  22-24; 
ihid.,  1914,  pp.  26-35. 


TAX  COMMISSION  OF  MINNESOTA  415 

exordium  and  the  commission  naturally  laid  little  emphasis,  in 
these  circular  epistles,  upon  its  authority  to  institute  reassess- 
ment and  removal  proceedings.  Without  such  punitive  measures 
it  would  have  been  practically  impossible  to  galvanize  the  asses- 
sors into  activity.  In  view  of  the  unfriendly  attitude  of  the  whole 
state  toward  any  change  in  the  basis  of  valuation,  the  use  of 
authority  to  accomplish  this  end  would  have  been  bad  judgment 
on  the  part  of  the  commission.  No  such  embarrassment  need  have 
accompanied  the  use  of  these  powers  in  securing  a  more  complete 
Hsting  of  property,  an  improvement  which  would  have  afforded 
much  relief  against  discriminatory  assessments.  Greater  emphasis 
was  laid  upon  this  point  in  the  letters  of  191 2  than  ever  before,  but 
even  these  circulars  failed  to  convey  a  sufficient  reminder  of  the 
ultimate  recourse  of  reassessment  or  removal  proceedings  open  to 
the  commission  in  the  event  of  local  neglect  or  disobedience. 

The  commission  has  seldom  ordered  a  reassessment  on  its  own 
motion  except  in  the  matter  of  the  assessment  of  moneys  and 
credits  under  the  law  of  191 1 .  In  all  appeals  for  a  reassessment  of 
property  other  than  moneys  and  credits  it  has  acted  conserva- 
tively, and  has  issued  an  order  only  upon  proof  of  substantial 
injustice  to  a  part  of  the  taxpayers,  which  could  not  be  corrected 
by  equaHzation.  In  1909  two  reassessments  of  personal  property 
were  ordered,  and  in  each  case  the  commission  presented  the  facts 
to  the  governor  with  a  request  for  the  removal  of  the  guilty 
assessors,  both  of  whom  resigned  before  the  dates  set  for  the 
hearings.^  No  other  instances  of  removal  proceedings  have 
occurred.  Four  reassessment  orders  were  issued  in  1910.  One  of 
these  was  for  the  correction  of  an  assessor's  error;  another  was  for 
the  assessment  of  an  unorganized  township ;  and  in  the  third  and 
fourth  cases  the  original  assessments  were  explicable  on  the 
ground  of  an  honest  difference  in  judgment.-  During  the  years 
191 1  and  191 2  reassessments  were  ordered,  in  every  case  upon 
request,  of  personal  property  in  three  districts  and  of  real  prop- 
erty in  five  districts.  No  conditions  worthy  of  comment  were  dis- 
closed and,  as  all  of  these  cases  involved  towns  or  smaller  cities, 

*  Minnesota  Tax  Commission,  Report,  1910,  pp.  22,  23. 
'  Ibid.,  pp.  21,  22. 


41 6  THE  STATE  TAX  COMMISSION 

the  volume  of  property  affected  was  insignificant.^  Somewhat 
greater  activity  has  been  displayed  in  recent  years  but  it  is  doubt- 
ful if  sufl&cient  initiative  has  been  shown  to  reaHze  the  full  poten- 
tial deterrent  effects  of  the  authority  to  order  reassessments. 

The  reasons  for  this  comparative  inaction  in  the  earlier  years  of 
its  work  have  already  been  noted.  Previous  to  the  change  in  the 
basis  of  assessment  the  commission  feared  the  disastrous  conse- 
quences of  a  general  increase  in  valuations.  But  it  is  just  possible 
that  these  consequences  were  taken  too  seriously;  they  were 
apparently  not  considered  at  all  in  the  case  of  the  iron  producing 
counties.  The  depreciated  basis  of  assessment  was  probably  the 
wiser  choice  in  view  of  all  the  circumstances ;  it  was  certainly  the 
most  expedient.  But  to  the  outsider  it  seems  that  the  time  and 
energy  spent  in  securing  the  law  of  19 13  might  have  sufficed  to 
educate  the  people  and  the  legislature  to  almost  any  other  reason- 
able program  of  tax  reform.  On  general  grounds  assessment  at 
full  value  is  preferable  to  any  scheme  involving  a  depreciated' 
basis.2 

The  situation  which  the  commission  faced  may  be  seen  from 
the  details  of  the  personal  property  assessment  given  in  the 
table  below. 

During  the  first  three  years,  in  which  the  figures  are  strictly 
comparable,  practically  the  whole  of  such  increase  as  was  made 
occurred  in  the  classes  of  tangible  property,  while  the  amount  of 
money  assessed  stood  stationary  and  the  volume  of  credits 
assessed  actually  decHned.  The  proportion  of  intangibles  to 
total  personal  property  fell  from  26.6  per  cent  in  1908  to  25  per 
cent  in  1910.  The  experience  of  other  states  shows  that,  while 
the  uniform  rule  endured,  satisfactory  assessments  of  moneys 
and  credits  could  not  have  been  obtained  by  the  most  rigorous 
supervision.  The  withdrawal  of  these  classes  from  general  assess- 
ment in  191 1  and  the  application  of  a  three-mill  rate  was  a 
significant  advance.' 

^  Minnesota  Tax  Commission,  Report,  191 2,  p.  9. 

*  Cf.  the  discussion  in  Wisconsin  Tax  Commission,  Report,  1914,  pp.  26-30. 
Also  Bullock,  loc.  cil. 

^  Laws  of  Minnesota,  1911,  ch.  285. 


TAX  COMMISSION  OF  MINNESOTA 


417 


Personal  Property  taxed  at  Uniform  Rates,  1908-14 ' 
(millions  of  dollars) 


Class 

IQ08 

1909 

1910 

1911 

1912 

1913 

I0I4 

/.  Tangibles 

37.8 

8.3 
26.8 
12.3 
32.6 
13.8 

38.4 

8.9 
28.6 
14s 
36.0 
IS-S 

40.S 

10. 1 
28.8 
iS-o 
36.8 
14.S 

40.2 

11.8 
31.6 
IS. 7 
38.2 
IS. 7 

42.0 

13.7 
32.7 
16.6 
39.2 
IS. 9 

48.9 

15-4 
33.8 
18.3 
39.3 
17.7 

58.0 

14.4 
23-5 
20.7 
36.2 
7.3 

2.  Vehicles  (wagons,  carriages,  autos, 
and  street  railway  cars)  

4.  Agricultural  and  manufactur'g  tools 

6.  Manufacturers'  stocks 

132.2 

5-6 
9-9 
20.3 

lS-3 

142.4 

6.1 
8.6 
20.3 

IS-2 

146. 1 

5.6 
8.7 
22.8 

IS-S 

153-2 

24.7 
15.4 

160.2 

26.2 
16.6 

163.4 

28.S 
18.3 

//.  Intangibles 

2.  Credits 

24.5 
10.4 

4.  Bonds  and  stocks  other  than  bank 
stock  

Total  intangibles 

9.4 

S0.2 
10.6 

52.6 
II. I 

40.4 
12.4 

42.9 
11.9 

46.8 
14.0 

34-9 
33.8 

///.  All  Other  Personalty 

1930 

203.2 

209.8 

206.0 

2x5.1 

234.2 

228.9 

Bank  stock,  the  returns  of  which  rose  slowly  but  steadily  to 
1913,  has  probably  been  assessed  more  evenly  than  any  other 
class  of  personal  property.  This  result  has  been  achieved  by 
legislation  which  rendered  evasion  well-nigh  impossible.  Bank 
officials  were  required  to  furnish  a  list  of  shareholders,  setting 
forth  the  residence  of  each  and  the  number  of  shares  owned.  The 
tax  was  made  a  lien  for  the  satisfaction  of  which  the  bank  might 
be  required  to  make  deduction  from  dividends  paid.  The  stock 
has  been  valued  at  the  difference  between  the  aggregate  of  capi- 
tal, surplus  and  undivided  profits  and  the  real  estate  locally 
taxed. 2  Under  the  new  law  40  per  cent  of  the  value  as  thus  deter- 
mined is  taken  as  the  assessed  value.  No  such  inquisitorial 
methods  were  used  in  listing  other  classes  of  intangible  property 
under  the  general  property  tax  and  the  attempt  to  introduce 
them  would  probably  have  been  exceedingly  repugnant  to  pubHc 
sentiment. 

^  Compiled  from  data  in  the  biennial  reports. 
*  Laws  of  Minnesota,  1905,  ch.  60. 


41 8  THE  STATE  TAX  COMMISSION 

The  item  "  Bonds  and  Stocks  other  than  Bank  Stocks " 
includes  three  classes  of  securities,  none  of  which  has  been  ade- 
quately assessed  in  the  past.  These  are :  i .  The  stocks  of  foreign 
corporations.  In  19 14  the  total  return  of  this  class  of  property 
was  $1,518,893,  a  sum  which  the  commission  admitted  to  be  only 
a  small  part  of  the  total  of  foreign  stocks  held  in  the  state.  The 
element  of  double  taxation  was  assigned  as  the  motive  for  the  low 
return,  and  the  commission  recommended  that  these  stocks  be 
listed  with  moneys  and  credits.^  A  bill  for  this  purpose  failed  of 
passage  in  191 5. ^  2.  Corporate  excess.  The  return  of  corporate 
excess  is  conceded  to  be  very  inadequate,  but  the  responsibility 
therefor  was  thrown  back  upon  the  law,  which  requires  calculation 
of  the  taxable  excess  by  deduction  of  the  real  and  personal  prop- 
erty taxed  locally,  from  the  market  value  of  the  stock.  It  is 
undoubtedly  proper,  as  the  commission  recommends,  to  include 
bonds  with  stocks  in  reckoning  the  total  capital  investment  in  a 
corporate  enterprise.^  But  the  failure  to  include  the  bonds  is  not 
the  only  reason  for  the  inadequate  taxation  of  corporate  excess  in 
Minnesota.  The  bonds  of  manufacturing  and  mercantile  com- 
panies are  usually  far  less  important  than  the  capital  stock,  and 
are  not  generally  included  in  computing  corporate  excess  in  other 
states.  The  real  reason  for  the  present  condition  is  the  method  of 
administration.  The  local  assessors  list  both  the  tangible  prop- 
erty and  the  corporate  excess,  and  the  tax  commission  has 
apparently  made  no  serious  effort  to  test  or  correct  their  results. 
The  assessment  of  corporate  excess  is  properly  a  central  function ; 
and  if  locally  performed,  it  is  doomed  to  failure  without  strong 
central  supervision.  The  disclosure  was  made  in  19 14  that  in 
former  years  assessors  had  been  listing  as  "  stocks  and  bonds  " 
much  of  the  tangible  property  of  the  local  pubHc  utilities,  such  as 
wire,  poles,  rails,  and  other  equipment.'*  3.  Stocks  and  bonds 
held  by  individuals.  The  principal  part  of  the  $10,400,000 
returned  in  1914  was  given  in  by  individuals,  although,  as  in  the 
case  of  corporate  excess,  no  serious  attempt  has  been  made  to  cor- 
rect the  local  returns,  or  to  improve  them  de  novo. 

1  Minnesota  Tax  Commission,  1914,  Report,  p.  55. 

*  Ibid.,  1916,  pp.  2,  3.  »  Ibid.,  1914,  p.  5.  ■•  Ibid.,  p.  55. 


TAX  COMMISSION  OF  MINNESOTA  419 

The  table  above  supplies  ample  explanation  and  justification 
for  the  taxation  of  intangibles  at  special  rates.  The  principle  of 
classification  had  been  made  possible  by  a  constitutional  amend- 
ment adopted  in  1906  '  and  its  first  application  was  the  mortgage 
registry  tax  of  1907.^  This  law  was  modelled  after  the  New  York 
law  of  1906,  with  the  essential  difference  that  in  New  York  the 
board  of  tax  commissioners  is  charged  with  certain  supervisory 
duties  while  in  Minnesota  the  administration  of  the  law  is 
entirely  outside  the  jurisdiction  of  the  tax  commission.  The  total 
registry  taxes  paid  on  mortgages  from  April  30,1907,  to  July  31, 
1916,  was  $3^63,563. 

In  191 1  the  principle  of  classification  was  further  appUed  by 
the  segregation  of  moneys  and  credits  other  than  those  reached 
by  the  registry  tax,  for  taxation  at  a  three  mill  rate.^  The  de- 
moralizing influence  of  the  general  property  tax  can  hardly  be 
better  illustrated  than  by  a  comparison  of  the  results  before  and 
after  the  imposition  of  the  three  mill  tax : 

Assessment  of  Moneys  and  Credits,  1910-16^ 

Year                                   Persons  assessed         Total  assessment  Total  taxes 

1910 6,200  $13,919,806  $379,754 

19" 41,439  115,481,807  347,028 

1912 50,564  135,369,314  406,107 

1913 57,068  156,969,892  470,909 

1914 73,266  196,548,307  589,644 

1915 73,491  212,696,831  636,404 

1916  74,219  234,186,268  702,588 

These  figures  hardly  need  comment.  They  furnish  deadly  am- 
munition for  whoever  would  assault  taxation  of  all  property  by  a 
uniform  rule.  And  yet,  Minnesota's  experience  raises  the  question 
whether  any  system  of  taxing  intangibles,  locally  administered, 
will  prove  ultimately  satisfactory.  The  commission  pronounced 
the  returns  of  both  191 2  and  19 13  very  disappointing,  and  even 

^  Constitution  of  Minnesota,  Art  IX,  §  i. 

*  Laws  of  Minnesota,  1907,  ch.  328.  The  rate  was  50  cents  per  $100  until  1913, 
when  it  was  changed  to  15  cents  per  $100  on  mortgages  due  in  five  years  or  less, 
and  25  cents  per  $100  on  those  with  a  maturity  longer  than  five  years.  Ibid., 
1913,  ch.  163. 

'  Ibid.,  1911,  ch.  285. 

*  Minnesota  Tax  Commission,  Report,  1916,  p.  68. 


420  THE  STATE  TAX  COMMISSION 

after  a  considerable  increase  in  19 14  it  declared  that  not  above 
one-third  of  the  total  moneys  and  credits  owned  in  the  state  was 
listed.  1 

In  marked  contrast  to  the  treatment  of  general  property 
returns,  the  commission  has  made  drastic  use  of  its  power  to 
order  reassessments  of  moneys  and  credits,  although  of  necessity 
the  principal  emphasis  has  fallen  upon  those  years  in  which  the 
staff  was  not  engaged  with  the  equaHzation  of  real  estate.  The 
results  of  the  several  reassessments  are  shown  in  the  following 
table : 

Reassessments  of  Moneys  and  Credits,  1911-162 

Number  of  tax  Number  of  re-       Increase  of  moneys 

districts  re-      Original  num-        turns  in  the  and  credits  by 

Year  assessed         ber  of  returns       reassessment  reassessment 

1911 297  1,831  8,630  $9,619,653 

1912 7  72  134  217,006 

1913 239  2,362  6,718  5,183,310 

1914 8  325  483  251,598 

1915 

1916 1,294  3,281  1,851,417 

It  is  evident  that  the  commission  has  been  compelled  to  neglect 
the  problem  of  intangible  assessments  in  the  years  when  real 
estate  must  be  equalized.  This  has  meant  a  real  loss  of  time  and 
effort,  for  the  comparative  inaction  in  the  even-numbered  years 
has  without  doubt  contributed  to  the  weaker  local  assessment  in 
the  alternate  years.  For  this  loss  the  lack  of  a  properly  equipped 
and  officered  statistical  bureau  is  responsible,  and  the  legislature 
should  make  provision  for  such  a  bureau  without  further  delay. 

The  three  mill  tax  on  moneys  and  credits  has  now  (191 6)  been 
in  operation  through  six  assessments,  and  while  notable  progress 
has  been  made  the  results  are  still  far  from  satisfactory.  The 
greater  efficiency  of  the  central  over  the  local  assessment  suggests 
that  the  situation  would  be  generally  improved  by  a  greater 
degree  of  central  control  over  the  original  assessment,  such  as 
would  be  obtained  by  central  selection,  or  at  least  power  of 
removing  the  assessors.  The  special  commission  of  1901  favored 
the  first  arrangement  for  all  assessors,  but  there  has  been  no 

1  Minnesota  Tax  Commission,  Report,  1916,  p.  74. 

*  From  the  reports  of  the  Conmiission.     Figures  for  19 15  not  published. 


TAX  COMMISSION  OF  MINNESOTA  42 1 

sentiment  in  favor  of  this  plan  in  the  state  in  recent  years.  Three 
successive  legislatures  —  in  1909,  191 1,  and  19 13  —  have  refused 
to  provide  a  county  assessor  locally  chosen.  This  change  would 
bring  a  vast  improvement  in  the  original  local  assessments  of  all 
property  and  would  greatly  facilitate  a  proper  equalization.  The 
commission  renewed  its  recommendation  for  a  county  assessor  in 
1914  and  1916.^ 

Returning  to  the  discussion  of  moneys  and  credits,  the  com- 
mission admitted  in  1916  that  there  was  still  much  room  for 
improvement.  The  blame  for  the  present  unsatisfactory  opera- 
tion of  the  law  is  laid  upon  the  local  assessors,  who  are  said  to  be 
accepting  the  taxpayers'  statements  without  question  instead  of 
requiring  a  list  of  the  taxable  property  as  provided  by  law  and  the 
instructions  of  the  tax  commission.-  This  appears  to  be  a  virtual 
admission  that  the  machinery  of  central  supervision  as  at  present 
established  in  Minnesota  is  inadequate  to  the  task  of  securing 
proper  returns  from  this  class  of  property.  The  dragnet  of  reas- 
sessment always  yields  a  sufficient  catch  to  justify  the  effort,  but 
it  is  significant  that  this  phase  of  supervisory  activity  appears  to 
be  on  the  decline.  Two  years  went  by  with  almost  no  use  of  it 
and  the  operations  in  1916  were  on  a  much  smaller  scale  than  in 
former  years,  notwithstanding  the  commission's  feeling  that  the 
assessment  had  been  very  inadequate. 

Criticism  of  the  commission's  failure  to  use  more  vigorously 
its  drastic  powers  of  supervision  must,  of  course,  take  account  of 
the  state  of  public  opinion,  that  mighty  formative  force  behind  all 
law.  Wholesale  reassessments  of  moneys  and  credits  are  tolerated, 
because  the  tax  is  not  unjust.  Wholesale  reassessments  of  other 
forms  of  property,  still  subjected  to  much  higher  rates,  would 
possibly  arouse  popular  opposition  to  central  supervision.  It  is 
possible,  too,  that  extended  use  of  removal  proceedings  would 
have  a  similar  effect.  The  commission  has  appHed  itself,  with 
tact,  industry,  and  patience,  to  the  pioneer  task  of  enlightenment, 
and  its  success,  on  the  whole,  has  been  distinctly  encouraging.  A 
singularly  interesting  and  effective  means  of  disseminating  knowl- 

^  Minnesota  Tax  Commission,  Report,  1914,  pp.  2,  232;   ibid.,  1916,  p.  2. 
*  Ihid.,  p.  69. 


422  THE  STATE  TAX  COMMISSION 

edge  of  the  practical  operation  of  the  tax  system  was  employed 
during  191 1  and  191 2.  With  the  cooperation  of  some  one  hundred 
and  fifty  newspapers  in  the  state  there  was  published  a  series  of 
articles,  prepared  by  the  commission,  outlining  the  tax  law  and 
describing  its  administration  and  results. ^  These  articles  form  a 
valuable  supplement  to  the  admirable  discussion  of  the  state's  tax 
problems  which  has  been  published  in  each  of  the  five  biennial 
reports  thus  far  issued  (191 6).  The  most  elaborate  of  these 
reports,  for  1911-12,  may  be  briefly  reviewed  as  illustrative  of  the 
careful  and  thorough  accounting  of  their  stewardship  which  the 
commission  renders  to  the  people. 

This  report  contains  sixteen  chapters  and  an  appendix,  the 
latter  consisting  of  the  detailed  equahzation  tables,  the  assess- 
ment of  personal  property  by  classes,  and  other  pertinent  statis- 
tical data.  After  a  brief  summary,  in  the  first  chapter,  of  the 
recommendations  which  are  more  fully  treated  in  succeeding 
chapters,  the  work  for  the  biennial  period  is  reviewed.  Separate 
chapters  are  devoted  to  abatements  and  reassessments,  equaliza- 
tion, the  taxation  of  moneys  and  credits,  and  of  minerals.  The 
sales  method  is  carefully  described;  valuable  comparative  data 
on  the  assessment  of  moneys  and  credits  are  given;  and  the 
highly  technical  methods  employed  in  the  estimates  of  tonnage 
and  the  valuation  of  the  ore  properties  are  made  intelligible  to  the 
lay  reader  in  a  most  interesting  manner.  A  series  of  chapters  is 
then  devoted  to  various  proposals  for  further  reform,  including 
the  suggested  change  in  the  basis  of  valuation,  the  bill  for  a  county 
assessor,  and  the  use  of  tax  maps.  No  definite  recommendations 
are  made  for  an  income  tax,  though  the  first  results  of  the  Wiscon- 
sin income  tax  are  regarded  as  strongly  indicative  of  the  perma- 
nent success  of  this  form  of  state  taxation.  A  separate  chapter  is 
given  to  the  question  of  taxing  land  values,  with  complete  exemp- 
tion of  personal  property  and  structures;  and  though  no  definite 
recommendations  are  made,  the  problem  is  commended  to  the 
serious  consideration  of  every  student  of  taxation.  The  com- 
mission concluded  that  the  use  of  the  single  tax  on  land  values 

1  Minnesota  Tax  Commission,  Report,  191 2,  ch.  16.  Much  the  same  outline  is 
followed  in  the  briefer  subsequent  reports. 


TAX  COMMISSION  OF  MINNESOTA  423 

since  1880  would  not  have  lessened  the  burden  of  taxation, 
governed  as  the  latter  is  by  the  expenditures  of  government.^  In 
the  chapter  on  railroad  taxation  the  commission  enters  the  con- 
troversial field  of  gross  earnings  versus  ad  valorem  taxation,  and 
argues  warmly  in  defense  of  the  former.^  As  has  been  pointed  out 
above,  the  author  of  this  chapter  hardly  makes  out  a  convincing 
case  for  the  gross  earnings  tax,  though  he  does  attack  the  funda- 
mental weaknesses  of  the  ad  valorem  system.  Inasmuch  as  there 
appears  to  be  general  satisfaction  with  the  gross  earnings  tax  in 
Minnesota,  the  commission's  defense  of  the  system,  for  that 
state,  can  be  endorsed;  but  universal  approval  or  support  will 
hardly  be  found  yet  for  the  sweeping  generalization  that  the  gross 
earnings  tax  is  '*  at  once  the  most  scientific,  the  most  simple,  the 
most  certain  and  the  most  just  system  yet  devised."  ^ 

In  1 910  the  commission  initiated  the  valuable  practice,  since 
continued,  of  making  a  detailed  analysis  of  the  cost  of  state  and 
local  government  in  Minnesota.  A  large  mass  of  financial  statis- 
tics has  been  collected  from  the  local  units,  to  which  have  been 
added  the  figures  for  the  state  expenditure.  These  studies  are 
extremely  significant  as  an  attempt  at  fiscal  orientation  and  their 
usefulness  is  greatly  enhanced  by  the  comparative  data  presented 
in  subsequent  reports.  The  statistics  of  local  expenditures  are 
interesting,*  but  unless  the  systems  of  accounting  in  use  in  the 
various  local  units  are  far  superior  to  those  found  elsewhere,  the 
accuracy  of  such  statistics  is  questionable.  But  in  any  case,  these 
impressive  figures  will  serve  to  call  public  attention  to  the  rapid 
growth  of  governmental  expenditures,  and  to  the  pressing  need  of 
securing  some  reforms  which  will  check  the  increase  of  tax 
burdens. 

^  Minnesota  Tax  Commission,  Report,  1912,  pp.  175,  180. 

*  Ibid.,  ch.  15. 

'  Ibid.,  p.  219.  Cf.  Seligman,  Essays  in  Taxation,  p.  242,  for  a  different  view 
of  the  gross  earnings  tax. 

*  Minnesota  Tax  Commission,  Report,  1910,  pp.  229-304;  ibid.,  1910,  pp.  245- 
569;  ibid.,  1914,  pp.  154-228. 


CHAPTER  XIII 

THE  KANSAS   TAX  COMMISSION 

The  general  property  tax  developed  in  Kansas  in  the  "  storm  and 
stress  "  of  the  ante-bellum  territorial  period  and  by  1858  it  was 
fully  elaborated  and  firmly  established.^  The  characteristic 
administrative  machinery  had  been  introduced,  including  a 
county  assessor,  a  county  board  of  review,  and  a  territorial  board 
of  equalization.  A  state  board  of  equalization  was  estabhshed  in 
1861.-  The  territory  had  alternated  between  the  county  and  the 
township  as  the  assessment  unit  according  as  the  balance  of 
power  had  shifted  between  the  sympathizers  of  northern  and 
southern  institutions,  but  in  1869  the  township  type  was  defi- 
nitely adopted.^  Both  county  and  state  boards  of  equalization 
were  ex  officio  bodies,  possessing  but  limited  powers  in  their 
special  field  of  equahzation,  and  none  of  a  more  effective  super- 
visory sort.  No  further  changes  of  importance  were  made  in  the 
administrative  organization  until  1876,*  when  the  tax  law  was 
rewritten  and  some  features  then  regarded  as  improvements  were 
introduced,  though  of  course  the  fundamental  nature  of  the  tax 
system  was  not  changed.  The  more  important  modifications  at 
this  time  were:  the  assessment  of  railroads  by  a  state  board  of 
railroad  assessors;  the  biennial  assessment  of  real  estate  and 
improvements,  from  an  actual  view  of  the  property;  and  an 
annual  conference  of  the  assessors  in  each  county  for  the  purpose 
of  agreeing  upon  a  uniform  basis  of  valuation. 

The  creation  of  the  board  of  railroad  assessors  marked  the  first 
step  toward  central  administration  of  corporation  taxes.     The 

^  Laws  of  Kansas,  185S,  ch.  67.  Benton,  Taxation  in  Kansas,  gives  additional 
historical  material. 

^  Laws  of  Kansas,  1861,  ch.  35. 

'  Ibid.,  1869,  ch.  30. 

*  Ibid.,  1876,  ch.  34.  A  special  tax  commission  had  reported  in  1873.  Cf. 
Boyle,  Financial  History  of  Kansas,  p.  50. 


THE  KANSAS  TAX  COMMISSION  425 

Ohio  plan  of  railroad  assessment  had  been  introduced  in  1869. * 
If  the  road  lay  entirely  within  one  county,  the  county  com- 
missioners, and  if  it  extended  into  two  or  more  counties,  the 
county  clerks  along  the  line,  were  to  act  as  a  board  of  assessors. 
In  1871  a  board  of  state  assessors  was  provided,  consisting  of  one 
member  elected  from  each  judicial  district;  ^  but  shifting  public 
opinion  decided  three  years  later  that  the  township  assessors 
should  again  be  entrusted  with  the  task.^  The  creation  of  the 
board  of  1876  was,  therefore,  the  real  beginning  of  effective 
central  assessment  of  corporations. 

The  device  of  an  annual  county  conference  of  the  township 
assessors  was  doubtless  designed  in  good  faith  to  promote  equaUty 
of  assessments  within  each  county  and  among  the  counties.  But 
it  is  hardly  surprising  to  learn  from  different  sources  that  exactly 
the  contrary  result  was  produced,  and  that  the  annual  confer- 
ences became  the  means  of  furthering  the  inequality  of  assess- 
ments which  they  were  designed  to  prevent.  The  special  tax 
commission  of  1901  declared  that  the  meetings  of  the  township 
and  city  assessors  each  spring  to  agree  upon  a  basis  of  assessment 
had  become  a  "  school  in  which  were  taught  the  methods  of 
releasing  property  from  assessment,  of  lowering  valuations  and 
generally  evading  the  tax  laws."*  Evidence  of  the  practical 
results  of  the  "  school  "  is  found  in  the  figures  reported  to  have 
been  adopted  by  the  various  counties  in  1897.^  Personal  property 
was  to  be  assessed,  according  to  these  agreements,  at  25  per  cent 
of  full  value  in  Atchison  county,  at  33^  per  cent  in  Chase,  at  40 
per  cent  in  Elk,  at  50  per  cent  in  Franklin,  at  60  per  cent  in 
Phillips,  at  75  per  cent  in  Stanton,  and  at  100  per  cent  in  Decatur 
county.  Only  three  counties  in  the  entire  state  had  adopted  the 
100  per  cent  basis  for  personal  property.  The  schedules  for  real 
property  displayed  even  wider  variations.  Thus,  Brown  county 
adopted  20  per  cent  of  full  value,  Dickinson  25  per  cent,  Sedgwick 
30  per  cent,  Shawnee  33^  per  cent,  Osborne  40  per  cent,  Franklin 
50  per  cent,  Graham  80  per  cent,  Hodgeman  100  per  cent,  and 

1  Laws  of  Kansas,  1869,  ch.  124.    Cf.  below,  pp.  439  ff. 
^  Ibid.,  1871,  ch.  150.  '  Ibid.,  1874,  ch.  96. 

*  Report  of  the  Special  Tax  Commission  of  Kansas,  1901,  p.  6. 

*  Quoted  by  Benton,  op.  cit.,  p.  150. 


426  THE  STATE  TAX  COMMISSION 

Gove  200  per  cent.  Eight  counties  had  agreed  upon  100  per  cent 
as  the  basis  of  assessment  for  real  property.  These  figures  are 
indicative  of  the  conditions  which  must  have  existed  for  years 
previous  to  1897,  according  to  the  statements  of  various  state 
officials.   As  early  as  1883  Governor  Martin  declared:  ^ 

Our  laws  on  the  subject  of  assessment  and  equalization  of  property 
values  for  taxation  need  thorough  revision.  Assessors  not  only  pay  no  at- 
tention to  the  laws,  but,  by  formal  agreement,  assess  property  at  from  20  to 
50  per  cent  of  its  true  value,  and,  as  a  consequence,  the  state  board  of  rail- 
road assessors  adopts  the  same  rule  in  appraising  the  value  of  railroad 
property.  If  it  were  possible  under  such  a  system  to  obtain  a  uniform  as- 
sessment of  property  values  throughout  the  state,  there  could  not,  perhaps, 
be  serious  ground  for  complaint,  but  the  valuation  of  property  in  the  several 
counties,  and  often  in  different  sections  of  the  same  county,  are  grossly  un- 
equal, ranging  from  25  to  60  per  cent  of  actual  value. 

In  1886  the  state  treasurer  denounced  the  "  vicious  "  system  of 
taxation  then  in  vogue,^  and  the  state  supreme  court  spoke  with 
strong  disapproval  of  the  "  habitual  disregard  of  the  statute 
relating  to  the  valuation  of  property  for  taxation  by  the  local 
assessors."  ^ 

A  second  special  commission  of  investigation  presented,  in  1901, 
a  brief  but  valuable  critical  analysis  of  the  Kansas  tax  system, 
with  some  very  progressive  recommendations.  Among  the  latter 
was  a  proposal  for  a  tax  commission  with  broad  powers,  including 
the  appointment  and  removal  of  the  local  assessors,  who  were  to 
be  county  officials.^  A  bill  embodying  these  recommendations 
was  submitted  to  the  legislature,  but  the  preliminary  education 
of  public  sentiment  had  not  been  sufficiently  thorough  and  no 
action  was  then  taken  upon  the  measure.  The  subject  was  not 
allowed  to  drop  into  the  background,  however,  and  in  1907  a  bill 
was  passed  containing  many  similar  provisions.*   In  at  least  one 

*  Quoted  by  Benton,  op.  cil.,  p.  152. 

*  Treasurer  of  Kansas,  Report,  1886,  p.  92.  Mr.  S.  T.  Howe,  then  state  treasurer, 
has  since  become  chairman  of  the  tax  commission. 

'  Quoted  by  Benton,  op.  cit.,  pp.  152,  153. 

*  Report  of  the  Special  Tax  Commission  of  Kansas,  1901,  pp.  14,  15.  Brindley, 
in  his  Financial  History  of  Iowa,  ii,  p.  293,  underestimates  the  significance  of  the 
earlier  measure  and  of  the  report  which  contained  it. 

*  Laws  of  Kansas,  1907,  ch.  408. 


THE  KANSAS  TAX  COMMISSION  427 

respect  the  bill  passed  in  1907  was  superior  to  the  one  proposed  by 
the  commission  of  1901 .  Influenced  by  the  Indiana  law  the  special 
commission  had  proposed  a  permanent  state  tax  commission 
similar  to  the  Indiana  Board  of  State  Tax  Commissioners,  with 
two  appointive  members  and  three  state  officials  acting  as  ex 
officio  members.^  Such  an  arrangement  would  undoubtedly  have 
been  very  detrimental  to  the  efficiency  of  the  tax  commission  in 
Kansas,  as  it  has  been  in  every  other  state  in  which  this  form  of 
organization  has  been  attempted.- 

The  most  significant  features  of  the  tax  legislation  of  1907  were 
the  creation  of  a  permanent  state  tax  commission  into  whose 
hands  the  entire  administrative  control  of  the  tax  system  was 
placed;  the  abolition  of  the  various  assessing  and  equaUzing 
boards,  and  the  transfer  of  their  functions  to  the  tax  commission; 
and  the  creation  of  the  office  of  county  assessor.  The  tax  com- 
mission was  to  consist  of  three  members  appointed  by  the  gover- 
nor for  a  term  of  four  years.  The  appointees  were  to  be  men 
skilled  in  matters  pertaining  to  taxation  and  they  were  to  receive 
the  salary  of  $2500.  The  principal  duties  imposed  upon  the  com- 
mission were  the  state  equalization,  the  assessment  of  certain 
classes  of  corporations,  the  general  supervision  of  the  tax  system, 
and  the  recommendation  of  needed  and  helpful  changes  in  the 
tax  laws. 

Equalization 

The  Kansas  law  provides  for  an  annual  state  equalization  of  the 
local  assessment  of  all  property.  The  section  which  defines  the 
powers  and  duties  of  the  tax  commission  while  acting  as  a  state 
board  of  equalization  is  one  of  the  most  drastic  of  its  kind  in  the 
United  States.  When  acting  in  this  capacity  the  commission  has 
power  to  ^ 

.  .  .  equalize  the  assessment  of  all  property  in  this  state  between  persons, 
firms  or  corporations  in  the  same  assessment  district,  between  cities  and 
townships  of  the  same  county,  and  between  the  different  counties  of  the 
state,  and  the  property  assessed  by  the  commission  in  the  first  instance. 

1  Report  of  the  Kansas  Special  Tax  Commission  of  Kansas,  1901,  pp.  12,  13. 
*  Cf.  the  chapters  on  Indiana,  Michigan,  New  York  and  Oregon. 
'  Laws  of  Kansas,  1908,  eh.  408,  §  17. 


428  THE  STATE  TAX  COMMISSION 

This  section,  taken  with  those  which  confer  authority  to  order 
reviews  either  on  appeal  or  on  its  own  motion,  gives  the  Kansas 
tax  commission  very  broad  powers  of  equalization,  the  results  of 
which  extend  down  through  to  the  individual  assessments  and 
affect  the  distribution  of  all  local  tax  levies.  Such  comprehensive 
jurisdiction  gives  to  the  function  of  equaHzation  a  significance 
and  vitahty  that  it  cannot  possibly  possess  when  it  is  limited  to 
adjusting  the  county  totals.  In  fact,  with  such  powers,  the 
equalizing  process  becomes  one  of  the  most  significant  of  all  the 
administrative  duties  performed  by  a  state  tax  commission, 
although  in  practice  the  Kansas  commission  has  not  been  able  to 
exert  this  authority  in  such  a  way  as  to  ehminate  all  inequalities.^ 

The  commission  was  not  organized  until  the  assessment  of  1907 
was  well  under  way  and  it  was  decided,  therefore,  to  perform  the 
equalization  for  this  year  in  accordance  with  the  laws  in  force  at 
the  time  that  the  assessment  had  been  made.  In  accordance  with 
this  policy  the  commission's  action  was  confined  to  "  smoothing 
out  "  the  worst  irregularities  in  the  1907  figures,  with  the  mini- 
mum of  changes  in  valuation.  The  net  increase  in  real  property 
was  $8,356,359,  and  in  personal  property,  $2,817,375.- 

In  preparation  for  the  assessment  and  equalization  of  1908, 
which  were  to  be  made  under  the  direction  and  with  the  assistance 
of  the  newly  selected  county  assessors,  the  commission  decided  to 
compile  sales  ratios.  Appropriate  blanks  were  sent  to  the  asses- 
sors with  instructions  for  returning  certain  data  regarding  land 
transfers.^  The  instructions  called  for  the  date  of  sale,  the 
description  of  the  real  estate  sold,  the  consideration  given  in  the 
deed,  and  the  assessed  value  of  the  property  for  the  year  in  which 
sold,  with  the  ratio  of  assessed  to  true  value.  The  assessors  were 
to  reject,  as  far  as  possible,  all  sales  that  were  not  hofiafide,  with 
a  cash  or  an  equivalent  consideration.  Lack  of  funds  prevented 
the  commission  from  making  that  careful  investigation  into  the 
accuracy  of  the  returns  which  is  desirable  and  even  necessary, 
and  in  consequence  the  results  were  probably  not  altogether 
trustworthy.    The  data  collected  covered  a  full  quinquennial 

1  Cf.  below,  pp.  434,  435. 

*  Kansas  Tax  Commission,  Report,  1908,  p.  115.  '  Ibid.,  p.  10. 


THE  KANSAS  TAX  COMMISSION  429 

period,  1903-07  inclusive,  and  included  over  40,000  transactions. 
While  the  methods  used  in  the  collection  and  inspection  of  the 
materials  were  not  as  conducive  to  accuracy  in  the  ratios  as  if 
the  work  had  been  done  by  experts,*  they  had,  nevertheless,  the 
advantage  of  affording  the  newly  chosen  county  assessors  an 
opportunity  to  reahze  the  irregularities  of  the  former  assessment 
methods  and  results.  They  also  gave  these  officials  greater 
famiharity  with  land  values  in  their  respective  counties  and  a 
broader  conception  of  their  duty  in  land  assessment. 

The  chairman  of  the  Kansas  commission  defended  the  ratios 
compiled  in  this  manner  by  asserting  that  they  had  been  the  basis 
of  all  of  the  progress  in  Kansas.  While  this  may  have  been  in  a 
sense  true,  in  that  the  commission  actually  made  use  of  the  ratios 
in  the  state  equahzation,  a  more  fundamental  explanation  of  the 
remarkable  results  obtained  in  the  1908  assessment  seems  to  be 
the  extensive  administrative  reform  which  went  into  operation  in 
that  year.  The  old  and  inefficient  decentrahzed  system  had  been 
completely  swept  away,  and  for  the  first  time  in  the  history  of  the 
state  an  assessment  and  equalization  were  made  which  were  free 
from  the  hindrances  and  deterrent  forces  of  the  old  regime.  The 
revolution  in  valuations  was  a  tribute  to  the  determined  and 
vigorous  enforcement  of  the  law  all  along  the  line. 

The  sales  data  have  been  supplemented  by  various  other  care- 
ful and  extensive  efforts  to  verify  and  check  the  local  returns  of 
both  real  estate  and  personal  property,  although  the  possibiHty 
of  an  adequate  equalization  of  personal  property  is  much  less  than 
in  the  case  of  real  estate.  The  limited  appropriations  have  per- 
mitted little  equipment  for  statistical  work  and  the  commission 
has  been  seriously  hampered  by  inadequate  funds  for  the  em- 
ployment of  a  sufficient  clerical  staff.    It  has  been  compelled, 

^  The  chairman  of  the  commission  has  repHed  to  the  above  criticism  of  the 
Kansas  method  of  collecting  sales  data  by  saying  that  the  assessors  were  fully  as 
capable  of  rejecting  fictitious  considerations  as  specially  trained  experts  would 
have  been.  That  the  assessor  may  possibly  be  a  perfectly  competent  agent  for  the 
collection  of  sales  data  is  not  denied;  but  the  chairman's  reply  apparently  over- 
looks the  fundamental  fact  that  the  most  important  purpose  of  the  sales  ratios  is 
the  check  which  they  afford  upon  the  assessor's  work.  If  the  assessor  is  allowed  to 
select  the  data,  how  can  this  purpose  be  served  ?  Letter  from  S.  T.  Howe,  Dec.  6, 
1913- 


430 


THE  STATE  TAX  COMMISSION 


therefore,  to  rely  upon  methods  some  of  which  were  reahzed  to  be 
unsatisfactory.  Considerable  energy  has  been  expended,  how- 
ever, in  acquiring  first-hand  knowledge  of  actual  conditions,  as 
the  following  description  of  the  preparations  for  the  equalization 
of  191 2  shows:  ^ 

By  the  use  of  the  ratios  and  a  knowledge  of  the  qualities  of  lands  in  the 
several  counties  obtained  by  the  Commission  at  first  hand  by  repeated 
visits  to  every  county  in  the  state  and  by  investigating  trips  made  by  auto- 
mobiles and  over  the  railway  and  by  livery,  the  journey  sometimes  in  auto- 
mobiles being  for  three  hundred  miles,  and  the  information  acquired  from 
the  records,  and  the  information  given  by  the  taxing  authorities  of  the  sev- 
eral counties  who  are  in  one  way  and  another  frequently  in  contact  with  the 
Commission,  there  is  enabled  a  pretty  fair  equalization  to  be  made  among 
counties,  and  this  affords  a  very  equitable  distribution  of  the  state  tax. 

It  is  possible  to  make  only  certain  rough  tests  of  the  commis- 
sion's work  as  a  state  board  of  equaHzation.  The  first  of  these 
relates  to  the  volume  and  number  of  changes  in  the  local  returns. 
This  test  is  an  indication  of  the  commission's  activity  in  equaliz- 
ing and  affords  no  further  assurance  of  equitable  results  than  is 
contained  in  such  evidence  of  industrious  overhauUng  and  check- 
ing up  of  the  local  figures.  The  total  volume  of  corrections  of  the 
real  estate  assessments  is  presented  in  the  following  table :  ^ 

Amount  of  Increase  or  Decrease  made  by  the  Kansas  Tax  Commission 

IN  THE  Aggregates  returned  by  the  County  Boards 

(millions  of  dollars) 


Lands 

+28.9 

+    1.3 

-   9-0 

-   0.6 

+27.1 

+45-0 

1915 +00.05 

1916 +29.3 


Year 
1908  . 
1909. 
1910. 

1911  . 

1912  . 
1913- 
1914- 


Improvements 
on  lands 


07 


Lots  and 
improvements 

+  8.3 

+  0.3 

-  2.7 

-  0.2 
+  1.2 

+    3.1 

-  0.03 

+  31-0 


The  significant  equalization  of  real  estate  occurs  in  the  even- 
numbered  years,  in  which  the  new  assessments  are  made.  In  the 
odd-numbered  years  account  is  taken  simply  of  the  addition  or 

'  Letter  of  S.  T.  Howe,  Dec.  6,  1913. 

2  Compiled  from  the  biennial  reports  of  the  Tax  Commission. 


THE  KANSAS  TAX  COMMISSION  43  I 

destruction  of  improvements  and  incidental  changes  in  value. 
It  is  but  natural,  therefore,  to  find  an  alternation  in  the  volume  of 
changes  made,  and  the  corrections  made  in  the  odd-numbered 
years  may  be  disregarded.  The  assessment  of  1908  was  the  first 
to  be  made  under  the  direction  of  the  new  tax  commission  and  it  is 
not  surprising  that  this  body  should  find  a  considerable  volume 
of  corrections  necessary  "in  order  to  secure  approximate  equality 
of  assessments  on  the  new  basis  of  valuation."  Two  years 
later  the  aggregate  volume  of  changes  was  much  less  and  the  net 
result  was  a  slight  decrease  in  the  total  valuation  of  real  estate. 
These  changes  occurred  mainly,  though  not  entirely,  in  the 
southwestern  quarter  of  the  state.  Beginning  with  191 2  the  tax 
commission  has  had  to  deal  more  severely  with  the  local 
returns  in  order  to  secure  approximate  equality  in  the  assess- 
ment. The  unusual  amount  added  to  the  valuation  of  farm  lands 
in  1914  was  on  account  of  excessive  allowances  by  some  local 
assessors  for  the  effect  of  the  drouth  and  crop  failure  of  the  pre- 
ceding summer. 

The  method  of  equaHzation  used  in  191 6  was  outHned  in  a  brief 
prehminary  bulletin  issued  by  the  commission.  The  fifty  coun- 
ties in  which  the  largest  increases  had  been  made  were  taken  as  a 
standard  and  enough  was  added  to  the  other  counties  to  bring 
them  to  the  same  basis  of  valuation.  In  twenty-three  of  these 
counties  the  local  assessment  had  been  increased  but  by  insuffi- 
cient amounts  to  comply  with  the  commission's  requirements; 
and  in  thirty-two  counties  the  assessors  had  reduced  their  valua- 
tions as  compared  with  191 5.  The  marked  increase  in  the  assess- 
ment of  lots  and  improvements  in  19 16  was  due  to  a  further  classi- 
fication of  urban  real  estate,  whereby  unplatted  lands  in  cities 
were  separately  listed.    This  class  was  equalized  at  $29,116,652.^ 

Because  of  the  compensatory  effect  of  positive  and  negative 
changes  the  commission's  activity  in  equaHzation  is  better  re- 
vealed by  the  number  of  changes  than  by  the  variations  in  total 
equalized  valuation.  The  number  of  counties  in  which  changes 
in  the  local  returns  were  made  is  given  in  the  table  on  the  next 
page.  These  changes  are  either  in  the  form  of  a  regular  per- 
*  Kansas  Tax  Commission,  Report,  1916,  p.  339. 


432 


THE  STATE  TAX  COMMISSION 


centage  applied  to  the  whole  county  or  a  special  change  made 
in  some  district.^ 

These  figures  parallel,  roughly,  those  in  the  preceding  table. 
They  also  indicate  that  lessened  activity  has  been  more  respon- 
sible than  compensatory  offsets  in  determining  the  net  change 
through  equalization.  This  diminishing  activity  has  characterized 
especially  the  treatment  of  city  lots,  in  the  local  returns  of  which 
no  regular  percentage  changes  have  been  made  since  191 2.    The 

Number  of  Changes  in  County  Valuations  in  the  State  Equalization 


Regular  changes 

Special  changes 

Year 

Lands 

Lots 

Lands  and  lots 

Total 
special 
changes 

Increase 

Decrease 

Increase 

Decrease 

Increase 

Decrease 

igo8    

18 
9 

35 
47 
38 

7 
II 

9 

26 
8 
3 

7 
II 

I 

7 

7 

5 

II 

12 

10 

24 

12 

13 

2 

17 

I910 

31 

IQI2 

17 

IOI4 

24 

IQ16 

14 

total  number  of  special  changes  was  higher  in  19 10  than  in  any 
other  year.  On  the  other  hand,  farm  lands  have  been  handled 
with  marked  severity  since  1910.  In  this  year  there  were  more 
decreases  than  increases;  there  were  more  increases  than  de- 
creases in  191 2  while  no  decreases  were  allowed  in  1914  or  1916 
and  an  unusual  number  of  increases  was  ordered  in  each  of  these 
years. 

The  justification  offered  for  this  course  is  that  under  the  old 
regime  city  real  estate  had  been  assessed  on  a  higher  basis  than 
farm  property  and  that  such  action  had  been  necessary  in  recent 
years  to  secure  equality  on  the  higher  basis  of  assessment.  This 
situation  is  unique  and  peculiar  to  states  like  Kansas.  Through- 
out, however,  the  local  assessor  runs  true  to  type ;  for  he  tends  to 
favor  the  wealthy  class.  In  rural  Kansas  this  class  is  composed 
largely  of  farmers  and  farm  property  is  relatively  underassessed. 

^  Compiled  from  the  biennial  reports.  The  commission  classifies  the  changes  in 
county  equalized  values  as  regular  and  special. 


THE  KANSAS  TAX  COMMISSION  433 

In  the  states  farther  east  the  wealthy  classes  are  city  dwellers 
and  the  greater  favoritism  has  naturally  been  shown  to  urban 
property.' 

The  separate  return  of  farm  lands  and  improvements  in  191 2 
and  thereafter  is  a  very  desirable  improvement  over  the  former 
practice.  This  change  was  the  fruit  of  suggestions  made  at  the 
annual  conferences  of  the  National  Tax  Association;  ^  and  in 
connection  with  it  the  commission  has  recommended  provision 
for  land  maps  large  enough  to  enter  thereon  each  parcel  of  land 
with  a  memorandum  of  the  quantity  of  each  class  of  land  as 
determined  by  the  assessing  officials  after  a  survey  or  reasonably 
close  approximation.  About  73  per  cent  of  the  total  acreage  of  the 
state  was  reported  as  cultivable  and  of  this  cultivable  area,  more 
than  60  per  cent  was  under  cultivation. 

A  second  test  of  the  state  equalization  relates  to  the  basis  of 
valuation.  Do  these  figures  represent  actual  cash  value  ?  It  is 
not  possible  to  answer  this  question  precisely,  especially  for  the 
valuations  of  city  real  estate;  but  the  figures  obtained  by  the 
thirteenth  United  States  Census  afford  a  check  upon  the  valua- 
tion of  farm  property.  The  census  valuation  of  farm  lands,  as  of 
April  15,  1910,  was  $1,537,976,573,  and  of  farm  buildings,  $199,- 
579,599,  a  total  of  $1,736,556,172.  The  equaUzed  value  of  lands 
and  improvements  in  1910  was  $1,353,199,725.  It  appears  some- 
what doubtful  if  the  disparity  of  $383,356,447,  or  more  than  31 
per  cent,  between  the  assessed  and  the  census  valuations  of  sub- 
stantially the  same  property  can  be  entirely  accounted  for  by 
differences  in  acreage  appraised  or  by  overvaluation  in  the  returns 
to  the  census  enumerators.  In  1914  the  commission  declared  that 
its  investigations  showed  that  lands  in  Kansas  were  not  yet 
assessed  at  their  actual  value  in  money  according  to  the  intention 
of  the  law,  and  upon  the  basis  of  this  finding  it  proceeded  to  order 
the  extensive  increases  of  that  year.^   The  inactivity  in  dealing 

^  Cf.  above,  chs.  i,  6,  8. 

2  Kansas  Tax  Commission,  Third  Report  to  the  Legislature,  1913,  pp.  65-67. 
Laws  of  Kansas,  1911,  ch.  316. 

^  Kansas  Tax  Commission,  Report,  1914,  p.  182.  Cf.  also,  ibid.,  1916,  pp.  277, 
278.  The  commission  asserts  again  that  competitive  undervaluation  is  being  ex- 
tensively practiced  in  order  to  shift  taxes. 


434  THE  STATE  TAX  COMMISSION 

with  lots  and  improvements  thereon  suggests  that  the  commission 
has  not  yet  attempted  to  raise  all  classes  of  real  property  to  full 
value,  but  has  sought  merely  to  bring  lands  up  to  the  level  of  lots, 
without  regard  to  whether  either  class  was  really  assessed  at  full 
value.  Indeed,  the  commission  disclaims  any  intention  of  raising 
the  valuation  of  property  through  equahzation,  unless  the  evi- 
dence reveals  studied  attempt  to  evade  taxes  by  excessive 
undervaluation.  In  such  cases  it  will  equalize,  apparently,  by 
increasing  the  undervalued  properties  to  the  general  level  of  other 
assessments.^  The  uncertainty  of  the  basis  of  assessment  for 
personal  property  affords  additional  warrant  for  the  hesitation  at 
advancing  lands  too  abruptly  to  full  value.  Equality  of  tax 
burden  is  always  more  important  than  that  any  class  be  assessed 
at  full  value.  Such  data  as  are  at  hand  indicate  that  all  sorts  of 
personal  property,  especially  of  the  more  intangible  sorts,  are  not 
yet  assessed  at  full  value. ^ 

A  third  test  of  the  state  equalization  is  that  of  the  relative 
value  of  the  lands  of  different  districts.  It  is  obvious  that  land  of 
the  same  grade  and  desirabiHty  of  location  should  be  assessed  on 
the  same  basis,  regardless  of  the  fact  that  surveyor's  lines  had 
created  separate  assessment  jurisdictions  and  had  placed  some  of 
this  land  in  one,  some  in  another  of  these  jurisdictions.  If  the 
local  assessment  fails  to  produce  equahty  of  this  sort,  it  is  the 
function  of  the  local  and  state  equalizations  to  afford  the  neces- 
sary correction.  Comparison  of  the  average  values  of  land  in  the 
several  counties  from  1910  to  1914  reveals  a  general  progression 
toward  a  smoother  gradation  from  the  more  populous  and  fertile 
sections  of  the  eastern  part  of  the  state  to  the  less  thickly  settled 
and  more  barren  districts  of  the  western  part.^  In  this  respect  the 

1  Kansas  Tax  Commission,  Report,  1914,  p.  181.  Mr.  Howe  stated  at  the  Na- 
tional Tax  Conference  of  1914  that  most  of  the  increases  of  19 14  were  made  in 
counties  in  which  the  local  aggregate  was  lower  than  in  1913.  Proceedings  of  the 
National  Tax  Conference,  1914,  p.  90.  In  the  memorandum  explanatory  of  the 
equahzation  of  1916  above  referred  to  it  was  stated  that  the  increases  in  certain 
counties  were  necessary  in  order  to  bring  certain  counties  to  the  level  of  aissess- 
ments  which  had  been  voluntarily  established  in  certain  other  counties. 

"  Cf.  below,  p.  457. 

^  Kansas  Tax  Commission,  Third  Report  to  the  Legislature,  IQ13,  pp.  35-45- 
This  comparison  may  be  made  by  referring  to  a  series  of  outUne  maps  pubhshed  in 


THE  KANSAS  TAX  COMMISSION  435 

commission  is  eliminating  discrepancies  between  counties  and  the 
exceptions  are  explicable  on  account  of  local  conditions.  There  is 
less  certainty  that  the  inequalities  between  townships  have  been 
dealt  with  so  effectively.  The  commission  recognizes  the  exist- 
ence of  inequalities  of  this  sort,  but  it  ascribes  the  responsibility 
for  such  conditions  to  the  poHcy  of  requiring  the  township  trustee 
to  act  as  the  assessor  ex  officio.'  The  person  elected  to  this  office 
is  often  unfitted  to  be  the  assessor;  and  he  is  usually  allowed 
neither  time  nor  funds  sufficient  to  perform  an  efficient  assess- 
ment. Many  of  the  township  trustees  resigned  rather  than  under- 
take the  classification  of  farm  lands  as  required  by  the  commission 
in  191 2.  The  most  extreme  of  several  serious  cases  disclosed  by 
reassessment  proceedings  was  the  following :  ^ 

Average  Assessed  Values  per  Acre  of  Lands  Separated  by 
Township  Lines 

137,     149.     129,     116,     96,     70,    91,    82,     70,     76,     73,     71 

Township Line 

78,       75,        76,       62,     52,     44,     45,     47,     44,     44,     40,     S3 

This  discrepancy  was  apparently  not  an  isolated  case,  for  the 
commission  declared  that  it  was  impossible  for  the  local  boards  of 
review  to  make  adequate  corrections  of  unequally  assessed  prop- 
erties.^ These  inequalities  are  not  eliminated  by  the  tax  com- 
mission either,  unless  brought  to  its  attention  through  appeal. 
Because  of  the  statutory  limitations  on  the  time  allowed  for  the 
state  equalization  and  the  lack  of  funds  for  an  adequate  investiga- 
tion of  the  local  assessment,  the  commission  has  been  compelled 
to  assume  that  the  local  valuation  and  equalization  are  equitable 
unless  shown  by  complainants  to  be  otherwise.''  The  present 
facilities  for  checking  up  and  testing  the  local  returns  have  not 
been  equal  to  the  task  of  a  thorough  inspection  on  an  independent 
basis.    A  reliable  sales  ratio  prepared  for  each  township  might 

the  biennial  reports,  showing  the  average  assessed  valuation  of  lands  in  each  county 
for  the  successive  reassessment  years. 

^  Kansas  Tax  Commission,  Third  Report  to  the  Legislature,  1913,  pp.  35-45. 

2  Ibid.,  p.  36.  '  Ibid.,  p.  38. 

*  Remarks  of  Commissioner  Glass,  in  Proceedings  of  the  National  Tax  Confer- 
ence, 1910,  pp.  365-371.    Also,  Kansas  Tax  Commission,  Report,  1916,  pp.  377,  378. 


436  THE  STATE  TAX  COMMISSION 

accompKsh  this  and  the  fact  that  such  inequaHties  have  escaped 
attention  is  another  indication  of  the  insufficiency  of  the  Kansas 
method  of  constructing  the  ratios.^ 

The  commission  recommends  the  remedy  of  a  quadrennial 
assessment  of  real  estate,  made  from  an  actual  view  of  the  prop- 
erty and  performed  under  the  immediate  direction  of  the  county 
assessor.  It  is  suggested  that  one  year  be  taken  for  this  work  and 
that  improvements  be  added  annually.  This  recommendation 
appears  to  be  eminently  wise.  The  commission  feels  strongly  that 
greater  administrative  centralization  will  prove  necessary  to 
relieve  the  inequalities  of  the  original  assessment,  without  which 
no  equalization  will  prove  successful.  It  seems  clear,  however, 
from  the  evidence  and  from  the  commission's  own  statements  that 
there  yet  remain  in  the  real  estate  assessments  numerous  inequali- 
ties which  are  not  eliminated  by  local  and  state  equalization  as  of 
necessity  performed  under  existing  laws. 

Turning  now  to  the  equalization  of  personal  property  assess- 
ments, it  is  of  course  natural  that  greater  indeiiniteness  must 
characterize  the  methods  employed  and  the  results  attained.  The 
defects  of  the  general  property  tax  stand  out  most  strikingly  at 
this  point.  Field  work  and  inspection  tours  afford  little  informa- 
tion of  value  because  of  the  mobihty  of  many  forms  of  personalty 
and  the  elusiveness  of  other  forms.  The  number  or  quaUty  of  the 
Hve  stock  found  at  the  date  of  reassessment  bears  little  necessary 
relation  to  the  number  or  quahty  of  such  property  in  the  district 
on  the  date  of  original  assessment.  The  series  of  uneven  crop 
years  which  Kansas  has  recently  experienced  has  increased  the 
difficulty  of  fisting  and  valuing  live  stock,  as  farmers  have  been 
tempted  to  scale  down  values  with  the  increased  scarcity  and 

1  A  recent  instance  of  local  inefl&ciency  which  was  not  detected  by  the  commis- 
sion's method  of  equalization  was  discovered  in  191 5,  through  an  appeal  for  a  re- 
assessment. The  township  assessor  had  reduced  the  average  assessment  of  land 
per  acre  from  $79.87  in  191 1  to  $60.23  in  191 2.  This  reduction  was  unnoticed  and 
the  slight  increases  ordered  by  the  tax  commission  for  the  county  as  a  whole  in  the 
equalizations  of  191 2  and  1914  left  the  lands  of  this  township  in  1915  far  below  the 
assessed  valuation  of  191 1.  The  commission  stated  in  reviewing  this  case  that  no 
attempt  had  been  made  to  equalize  among  the  townships  of  any  county  for  lack  of 
time  and  information.  In  the  Matter  of  the  Reassessment  of  Waviego  Township, 
PoUawalamie  County,  1915.    Kansas  Tax  Commission,  Report,  1916,  pp.  41-46. 


THE  KANSAS  TAX  COMMISSION  437 

higher  prices  of  feed.  The  wholesale  disposition  of  stock  in  lean 
years  has  intensified  the  alternating  rise  and  fall  of  stock  prices 
and  has  rendered  evenness  of  assessment  much  more  difficult.  In 
general,  the  commission  has  made  little  change  in  the  local  totals 
of  personal  property,  as  the  figures  below  reveal: ' 

Net  Change  in  Personalty  Aggregate  by  the  Tax  Commission 

Year  Amount  reduced  Year  Amount  reduced 

1908 $129,595*  1913 $2,436,143* 

1909 3.260,559  1914 180,034* 

IQIO 1,011,922  I915 5,304,661* 

I9II 500  I9I6 172,532 


I9I2 170.597 


=  Increase 


The  principal  attention  has  been  given,  in  recent  years,  to  the 
equalization  of  farm  animals.  Since  19 14  the  commission  has 
followed  the  plan  of  dividing  the  state  into  three  districts,  eastern, 
middle,  and  western,  and  averaging  the  assessed  values  of  farm 
animals  for  each  section.  Average  values  in  the  several  counties 
have  then  been  adjusted  in  accordance  with  the  district  averages. 
Increases  were  made  in  only  three  counties  in  19 14  as  the  result  of 
this  rough  approximation  to  equality. ^  The  relatively  large  in- 
crease of  19 1 5  was  practically  all  placed  upon  the  assessed  valua- 
tion of  certain  classes  of  farm  animals  in  twenty-two  counties.^ 

There  is  little  attempt  to  equalize  the  returns  of  other  classes 
of  personal  property.  The  obvious  impossibility  of  bettering  the 
situation  thereby  justifies  this  neglect,  though  it  increases  the 
commission's  responsibility  for  adequate  local  assessment.  The 
process  of  equalization  becomes,  therefore,  of  comparatively 
little  significance  for  the  distribution  of  the  tax  burden  among 
classes  of  personalty.  It  is  rather  a  problem  of  original  assessment 
and  any  contribution  to  greater  equality  among  classes  of  per- 
sonal property  which  the  commission  may  make  must  be  through 
its  supervisory  influence  over  the  original  assessment  process, 
whereby  the  local  officials  are  held  more  steadily  to  their  tasks. 

There  remains  the  question  of  the  proportion  of  the  total  tax 
burden  borne  by  real  and  personal  property,  as  compared  with 

'  From  data  in  the  biennial  reports  of  the  Ta.x  Commission. 

^  Kansas  Tax  Commission,  Report,  1914,  p.  186.        '  Ibid.,  1916,  pp.  97-104. 


438  THE  STATE  TAX  COMMISSION 

each  other  and  with  the  corporate  property  centrally  assessed. 
An  inspection  of  the  percentage  distribution  of  the  total  assess- 
ment reveals  a  fairly  constant  ratio  of  real  property  to  total  since 
1880.  In  the  fifteen  years,  1900-14  inclusive,  this  ratio  ranged 
from  64-66  per  cent  during  twelve  years,  touching  63.22,  63.29, 
and  66.01  per  cent,  respectively,  in  the  other  three  years.  The 
most  striking  fact  is  the  rise  of  the  percentage  of  personalty  to 
total  from  10.61  per  cent  in  1895  to  20.20  per  cent  in  1910.  From 
this  relatively  high  point  it  had  declined  by  1914  to  18.75  P^r 
cent.  Although  the  higher  ratio  of  personalty  to  total  assessment 
means  a  shift  of  a  portion  of  the  tax  burden  to  that  class,  the 
advantage  still  remains  with  it,  in  all  probability,  even  in  so 
distinctly  rural  a  state  as  Kansas. 

The  Special  Tax  Commission  of  1901  reiterated  the  assertion, ^ 
originated  in  the  sixties  by  the  New  York  State  Board  of  Asses- 
sors,2  that  the  value  of  personal  property  was  at  least  equal  to 
that  of  real  property.  This  statement  has  been  quite  generally 
accepted,  though  it  has  never  been  fully  established  and  at  least 
one  writer  has  contended  that  the  relative  amount  of  personal 
property  has  been  exaggerated.^  Nevertheless,  it  may  be  ques- 
tioned whether,  even  in  rural  Kansas,  the  proportion  of  taxable 
personalty  is  not  greater  than  one-fifth  of  the  total  taxable  wealth 
of  the  state.  The  commission  has  stated  that  not  all  of  the 
personal  property  is  taxed  under  the  present  method  of  super- 
vision and  control.  In  1909  it  was  estimated  that  about  as  much 
personalty  still  escaped  assessment  as  was  then  Hsted  on  the 
duplicates.*  In  the  decision  recently  rendered  by  the  state 
supreme  court  on  the  mortgage  registration  law  the  court 
accepted  the  estimate  that  the  $70,000,000  of  mortgages  assessed 
represented  only  about  one-fourth  of  the  total  holdings  of  this 
character  by  residents  of  Kansas.^ 

1  Report  of  the  Special  Tax  Commission  of  Kansas,  1901,  p.  10. 
'  New  York  State  Board  of  Assessors,  Report,  1863,  p.  28. 
'  T.  S.  Adams,  Taxation  in  Maryland,  pp.  40-45-     The  validity  of  this  state- 
ment will  depend  upon  the  section  of  the  country  to  which  reference  is  made. 
*  Kansas  Tax  Commission,  First  Report  to  the  Legislature,  1909,  pp.  27,  28. 
^  Wheeler  v.  Weightman,  96  Katisas,  50. 


THE  KANSAS  TAX  COMMISSION  439 

State  Assessment  of  Public  Service  Corporations 

Special  methods  of  assessment  for  public  service  corporations 
were  first  applied  to  the  railroads,  which  had  been  valued  since 
1876  by  a  state  board  of  assessors  composed  of  the  lieutenant 
governor,  secretary,  treasurer,  auditor,  and  attorney-general.^  In 
1897  intercounty  and  interstate  telegraph  and  telephone  com- 
panies were  brought  under  the  jurisdiction  of  the  state  board;'* 
and  in  1907,  when  the  tax  commission  superseded  this  board,  the 
central  assessment  was  extended  to  all  express,  sleeping  car, 
equipment  car,  gas,  oil,  and  pipe-line  companies.  The  valuations 
centrally  determined  have  always  been  certified  back  to  the 
county  auditors  on  a  mileage  basis  and  taxed  at  the  local  rates. 

As  long  as  the  practice  continues  of  taxing  at  the  local  rates  the 
valuations  which  are  centrally  determined,  the  basis  of  local 
assessment  cannot  be  considered  unimportant.  The  Kansas  law 
has  never  authorized  an  equalization  of  corporate  assessments  to 
the  same  basis  as  that  used  for  other  property,  but  in  practice 
this  has  often  been  done  although  not  always  accurately.  There 
was  unpardonable  laxity  on  the  part  of  the  earher  local  and  state 
assessing  authorities,  and  it  is  impossible  now  to  say  whether  the 
railroads  or  general  property  were  favored  the  more.  In  1892  the 
state  board  defended  its  action  in  reducing  railroad  assessments  on 
the  ground  of  undervaluation  of  the  property  locally  assessed.^ 
The  tax  commission  has  attempted  to  secure  approximate 
equality  of  assessment  between  corporations  and  other  property 
by  enforcing  vigorous  assessment  of  both  classes.  It  has  not 
undertaken  to  reduce  the  specific  amounts  certified  to  particular 
tax  districts  by  applying  the  ratios  at  which  the  other  property  of 
those  districts  has  been  assessed. 

Little  is  known  of  the  details  of  railroad  valuation  by  the  old 
state  board  of  assessors.  The  brief  reports  published  by  this 
board  contain  but  httle  reference  to  methods  or  principles  of  pro- 
cedure. In  1891  some  discussion  was  undertaken  of  the  principles 
which  were  said  to  have  been  used  in  the  valuation  of  rolling 

»  Laws  of  Kansas,  1876,  ch.  34.  *  Ibid.,  1897,  ch.  245. 

'  Auditor  of  Kansas,  Report,  1892,  pp.  v-viii. 


440  THE  STATE  TAX  COMMISSION 

stock  and  roadbed.  Chief  of  these  were  original  cost,  volume  of 
business,  earning  capacity,  terminal  facilities,  competitive  con- 
ditions, and  the  actual  value  of  the  property.^  The  last-men- 
tioned factor  begs  the  whole  question  of  proper  valuation  by 
independent  factors,  of  course.  It  is  impossible  that  some  of  the 
other  factors  were  ever  adequately  considered  from  an  independ- 
ent standpoint,  especially  the  question  of  the  cost  of  the  road. 
Such  data  as  were  available  on  original  cost  and  running  expenses 
must  have  come  from  the  railroad  companies  themselves.  The  law 
of  1876  had  provided  that  certain  data  were  to  be  returned  to  the 
state  board  of  assessors,  and  that  this  board  should  have  access 
to  the  statements  made  by  the  railroads  to  the  state  board  of  rail- 
road commissioners.  Until  the  Interstate  Commerce  Commission 
acquired  effective  control  of  railroad  reports  and  accounts,  how- 
ever, there  was  little  reliance  to  be  placed  upon  the  accuracy  of 
these  returns  and  none  upon  their  use  for  comparative  purposes, 
because  of  the  complicated,  and  to  the  board,  meaningless 
bookkeeping  of  the  railroads. 

The  assessment,  after  1897,  o^  the  telegraph  and  telephone 
companies  by  the  state  board  of  assessors  was  performed  on  much 
the  same  basis  as  that  of  the  railroads.  It  included  a  large  meas- 
ure of  guesswork  which  aimed  to  approximate  the  cost  of  the 
physical  equipment  and  the  volume  of  business  done.  No  attempt 
was  made  in  the  case  of  any  corporation  to  include  intangible 
elements  of  value.  In  fact  the  brief  sessions  devoted  to  the  sub- 
ject were  inadequate  for  any  but  the  most  superficial  estimates. 
In  1898  the  board  held  only  three  daily  sessions,  at  which  it  could 
hardly  have  done  more  than  determine,  in  the  most  general  way, 
an  appraisal  of  the  properties. ^ 

The  natural  result  of  this  policy  of  assessment  was  a  valuation 
at  a  percentage  of  full  value  which  was  probably  not  greatly 
below,  but  certainly  not  above  the  average  for  the  general  prop- 
erty of  the  state.  The  agents  for  the  companies  were  uniformly 
successful  in  preventing  any  substantial  additions  to  the  valua- 
tion, notwithstanding  the  steady  and  rapid  growth  of  railroads  in 

'  State  Board  of  Assessors,  Report,  1891,  pp.  6-1 1,  16-22. 
^  Benton,  Taxation  in  Kansas,  p.  148. 


THE  KANSAS  TAX  COMMISSION  441 

the  state.  Rolling  stock  was  regularly  listed  at  about  one-third  of 
full  values.  In  1890  railroads  were  assessed  at  $57,973,000,  and  in 
1893  ^t  $63,581,000.  Heavy  reductions  were  made  in  the  years 
following  on  account  of  the  panic  of  1893  ^"^^  the  depression  of 
railroad  values  due  to  widespread  reorganizations;  but  the  re- 
covery in  assessed  valuations  was  much  slower  than  the  actual 
market  conditions  warranted.  In  1900  the  total  assessment  was 
only  $57,621,000. 

The  tax  commission  made  its  first  assessment  of  corporate  prop- 
erty for  the  year  1908.  This  portion  of  the  tax  law  has  stood  prac- 
tically unaltered  since  the  seventies.  The  statements  required  of 
the  railroads  include  the  following  data :  * 

1.  Statistics  of  track  and  right-of-way,  with  proportion  of  same  in  each 
city,  town  and  county. 

2.  Length  of  second  track,  sidings  and  switches,  with  location. 

3.  A  complete  list  of  buildings  of  every  kind,  with  location  and  value. 

4.  Detailed  statement  of  track  equipment,  with  time  of  service  of  the 
iron  work. 

5.  A  full  list  of  rolling  stock,  by  classes. 

6.  A  statement  of  the  capital  stock  and  bonds. 

7.  A  correct,  detailed  inventory  of  all  tools  and  all  materials  for  repairs, 
and  of  all  other  personal  property. 

Strangely  enough,  no  statutory  provision  has  been  made  for  data 
relative  to  the  income  accounts.  The  commission  may  request 
any  other  desired  information  and  in  practice  does  have  before  it 
the  leading  items  from  these  accounts,  which  are  checked  by  the 
data  available  from  the  railroad  returns  to  the  Interstate  Com- 
merce Commission. 

The  methods  of  valuation  followed  by  the  commission  have  not 
been  described  in  any  detail  in  the  published  reports,  and  in  inter- 
views the  members  displayed  the  characteristic  reticence  in  dis- 
cussing the  more  intimate  features  of  their  plan.  On  one  occasion, 
however,  the  procedure  was  summarized  as  follows:  ^ 

The  returns  of  the  companies  were  carefully  examined;  tours  of  inspec- 
tion over  the  various  railroad  systems  were  made,  with  a  view  to  noting 
the  condition  of  the  property,  including  the  main  track,  second  track,  side- 

'  Statutes  of  Kansas,  §  9302,  amended  by  Laws  of  Kansas,  igog,  ch.  243. 
'  Kansas  Ta.x  Commission,  Report,  1908,  pp.  12,  93.    Cf.  the  similar  statement 
in  the  Report  for  1916,  pp.  61,  62. 


442  THE  STATE  TAX  COMMISSION 

track,  buildings,  water  and  fuel  stations,  etc.  Consideration  was  also  given 
to  materials  and  supplies  on  hand,  rolling  stock,  moneys,  credits,  and  all 
other  property  of  the  companies;  the  financial  features  of  the  properties 
for  each  of  the  five  preceding  years  were  considered,  such  as  capitalization, 
reported  cost  of  construction,  gross  and  net  earnings,  operating  and  main- 
tenance expenses;  the  relation  of  the  property  in  Kansas  to  the  interstate 
system  of  which  it  was  a  part,  and,  in  fact,  everything  which  could  be  con- 
ceived of  as  bearing  upon  value  received  careful  study. 

Limited  appropriations  have  rendered  impossible  a  physical 
valuation  of  the  railroads,  and  in  Heu  thereof  the  commission  has 
introduced  the  rather  novel  plan  of  actually  viewing  the  physical 
railroad  plant  of  the  state.  To  this  end  the  members  have  trav- 
ersed annually  all  of  the  main  Hues  and  as  many  as  possible  of  the 
branches  and  secondary  lines.  By  taking  the  latter  in  turn,  they 
are  all  viewed  in  time,  probably  once  in  two  or  three  years.  These 
journeys  have  been  made  entirely  at  public  expense  and  while  the 
roads  have  offered  every  courtesy,  there  has  been  no  suggestion  of 
obligation  to  them  for  the  services  rendered.  On  these  expeditions 
the  commission  has  carried  with  it  the  railroad  inventories  of 
buildings  and  track  equipment  and  has  endeavored  to  check  up 
the  various  items  en  route.  Stops  have  been  made  at  all  impor- 
tant cities  and  the  whole  railroad  plant,  including  yard  facihties, 
shops,  stations  and  other  equipment,  has  been  carefully  inspected. 
This  survey  of  the  properties  must  necessarily  be  rather  hastily 
done,  but  the  commission  beheves  that  it  serves  fairly  well  its 
chief  purpose,  which  is  to  detect  and  prevent  omissions  or  im- 
proper allowance  for  depreciation  of  the  structures  and  other 
localized  property  required  to  be  listed  for  taxation  where  located. 
These  tours  are  primarily  in  the  interests  of  the  various  localities, 
though  the  knowledge  thus  attained  of  the  physical  character  of 
the  roads  is  useful  in  determining  the  aggregate  valuation. 

The  published  reports  contain  no  intimation  that  the  final 
figures  include  any  element  of  intangible  or  franchise  value.  The 
law  does  not  require  a  specific  assessment  of  such  elements, 
though  it  does  provide  that  the  average  value  per  mile  which  is 
certified  to  the  locahties  shall  include  franchise  with  the  other 
factors  capable  of  apportionment,  such  as  roadbed,  rolling  stock, 
materials,  and  other  equipment.   There  is  no  separate  assessment 


THE  KANSAS  TAX  COMMISSION  443 

of  franchises,  in  any  case,  and  the  extent  to  which  such  factors 
will  be  allowed  to  influence  the  commission's  judgment  in  deter- 
mining the  total  valuation  will  depend  largely  upon  the  personnel 
of  that  body.  The  present  chairman  writes  that  "  as  a  matter  of 
fact  there  is  no  state  that  values  intangible  assets  of  the  railroads 
to  a  greater  extent  than  does  the  Kansas  state  board."  ^  The 
same  vigor  has  been  displayed  in  dealing  with  the  corporate  excess 
of  other  classes  of  corporations,  including  those  assessed  by  local 
officials.  The  courts  have  recently  interpreted  the  rather  general 
and  obscure  statutory  language  on  the  subject  of  franchise  taxa- 
tion so  as  to  sustain  the  taxation  of  corporate  excess  when  found 
to  exist,  whether  in  a  public  ser\dce  or  a  private  corporation. ^ 

As  amended  in  1909  the  law  prescribed  identical  returns  to  be 
made  to  the  commission  by  intercounty  and  interstate  telegraph, 
telephone,  and  pipe-line  companies.^  These  returns  were  to 
include,  in  each  case: 

1.  General  data  of  organization,  with  location  of  principal  office  and  ad- 
dresses of  principal  officers. 

2.  Par  value  of  outstanding  stock. 

3.  Real  estate  owned  in  Kansas  with  location  and  assessed  valuation. 

4.  Total  length  of  lines  in  the  state,  including  lines  controlled,  with  the 
mileage  in  each  county;  also  an  inventory  of  personal  property  with 
location. 

5.  Total  gross  receipts  from  all  sources,  and  from  Kansas  business. 

6.  Operating  expenses,  classified  as  the  commission  may  require,  and  the 
amounts  paid  in  dividends  with  the  rates  of  same. 

7.  Pipe-hne  companies  were  also  required  to  state  the  length,  size  and 
value  of  their  lines,  their  tanks  and  the  capacity  of  the  same,  and  all 
other  property  owned  and  controlled  by  them,  with  location  by 
counties. 

The  first  board  of  state  assessors  had  made  "  construction  and 
business  "  the  basis  of  valuation  for  the  telephone  and  telegraph 
companies.*  Under  the  earlier  regime  the  latter  had  acquired  the 
habit  of  asking  regularly  for  a  reduction  of  their  assessment  and 

^  Letter  from  S.  T.  Howe,  Dec.  6,  1913. 

^  Cf.  S.  T.  Howe,  "  The  Taxation  of  Corporate  Excess,"  National  Tax  Bulletin, 
Nov.  1916,  and  cases  cited. 

'  Revised  Statutes  of  Kansas,  §§  9248-9258,  as  amended  by  Laws  of  Kansas, 
1909,  ch.  255. 

*  Boyle,  Financial  History  of  Kansas,  pp.  133,  134. 


444  THE  STATE  TAX  COMMISSION 

they  have  since  found  difficulty  in  breaking  it.  The  practice 
probably  netted  the  companies  some  advantage  in  reductions, 
and  it  certainly  tended  to  prevent  advances  which  might  other- 
wise have  been  made.  Previous  to  1907  the  pipe-Hne  companies 
had  not  been  taxed  by  special  methods.  The  commission  de- 
scribed its  procedure  in  dealing  with  these  properties  as  follows :  ^ 

The  values  of  property  as  returned  by  the  companies  were  studied  in 
detail  and  compared  with  the  returns  of  other  properties  of  like  character. 
The  value  of  materials  used  in  construction;  gross  earnings;  capitalization; 
indebtedness  the  proceeds  of  which  were  used  in  construction;  supplies, 
merchandise  or  products  on  hand;  relation  of  the  part  of  the  property  in 
Kansas  to  its  whole  as  an  interstate  system,  were  aU  given  due  considera- 
tion, as  well  as  other  facts,  conditions  or  circumstances  affecting  the  several 
properties. 

There  had  been  no  special  provision  before  1907  for  the  taxation 
of  express  companies,  which  had  been  assessed  simply  for  the 
small  amounts  of  tangible  personal  property  happening  to  be 
observed  and  listed  by  the  local  assessors.  Notwithstanding  the 
exceedingly  light  taxes  that  were  levied  under  such  inadequate 
methods,  payment  was  usually  contested.  The  law  of  1907  intro- 
duced an  excise  tax  on  gross  receipts  from  interstate  business. 
The  original  rate  of  i^  per  cent  was  advanced  in  1909  to  4  per 
cent.  In  addition  to  the  excise  tax  express  companies  were  to  be 
taxed,  as  before,  at  the  local  rates  on  their  personal  property, 
which  was  to  be  assessed  and  apportioned  by  the  tax  commission. 

Various  methods  have  been  used  in  taxing  car  and  special 
equipment  companies  since  these  were  first  made  taxable  under 
separate  tax  laws.  The  present  plan,  adopted  in  1913,  is  that  of  a 
valuation  of  the  property  by  the  unit  rule  with  an  apportionment 
to  Kansas  on  the  basis  of  mileage  of  rolling  stock.  The  valuation 
assigned  to  the  state  is  taxed  at  the  average  state  rate,  for  state 
purposes. 2 

The  commission's  motive  in  recommending  the  retention  of  the 
taxes  on  these  companies  has  been  administrative  efficiency  rather 
than  the  desire  to  open  the  way  for  further  separation  of  the 
sources  of  state  and  local  revenue.   In  earher  reports  a  somewhat 

1  Kansas  Tax  Commission,  Report,  1908,  p.  100. 
^  Laws  of  Kansas,  1913,  ch.  320. 


THE  KANSAS  TAX  COMMISSION  445 

noncommittal  position  was  taken  on  this  question,  but  more 
recently  a  definite  stand  has  been  taken  against  the  proposal, 
chiefly  on  the  ground  that  '*  to  touch  the  people  locally  with  a 
demand  for  state  revenue  will  have  a  tendency  to  cause  legislators 
to  be  economical  in  appropriations."  ^  The  direct  state  tax  has 
been  more  profitable  to  the  localities  as  a  whole  than  separation 
would  have  been,  according  to  a  comparison  of  total  corporation 
taxes  with  the  direct  tax  on  general  property.^ 

Comparison  of  Total  Taxes  paid  by  Public  Service  Corporations 
AND  THE  State  Direct  Tax 

Taxes  paid  by  cen- 
trally assessed  public  Excess  of  taxes  paid 
service  corporations  State  direct  tax  on            by  corporations  over 
Year                       for  all  purposes  general  property                        state  tax 

1906 $2,742,556  $1,931,533  $811,023 

1907 3,150,341  2,745,797  404,544 

1908 3,014,355  2,215,899  798,456 

1909 3,577,155  3,160,150  417,005 

1910 3,402,904  2,895,507  507,397 

191I 3,947,982  3,339,686  608,296 

191 2 4,049,439  3,304,012  745,427 

1913 4,282,861  3,371,988  910,873 

1914 4,546,038  3,381,751  1,164,287 

1915 4,747,537  3,620,202  1,127,335 

These  figures  indicate  that  for  the  state  as  a  whole  the  direct  state 
tax  has  been  more  profitable  than  separation  of  sources  would 
have  been ;  but  it  is  quite  possible  that  the  chief  advantage  has 
gone  to  the  counties  and  tax  districts  containing  large  mileages  of 
public  utilities  and  that  other  districts  may  have  been  paying  out 
much  more  in  direct  state  tax  than  they  were  receiving  from  the 
corporations.^ 

Before  final  certification  of  the  valuations  to  the  local  districts 
the  corporations  are  allowed  full  rights  of  appeal  to  the  commis- 
sion sitting  as  a  board  of  review.   This  double  function  of  admin- 

'  Kansas  Tax  Commission,  Third  Report  to  the  Legislature,  1913,  p.  12.  Cf.  the 
discussion  in  the  Second  Report  to  the  Legislature,  191 1,  pp.  10-14.  The  Commis- 
sioner of  Corporations  inferred  from  this  discussion  that  the  Kansas  commission 
favored  further  separation,  as  recommended  by  the  Kansas  Educational  Commis- 
sion of  1908.     Taxation  of  Corporations,  Pt.  IV,  p.  118. 

*  The  data  in  the  table  are  from  the  biennial  reports  of  the  tax  commission. 

'  Cf.  the  first  effects  of  separation  of  sources  in  California,  Report  of  the  California 
Board  of  Equalization  on  the  First  Effects  of  Separation,  1911,  pp.  16,  17. 


446  THE  STATE  TAX  COMMISSION 

istrator  and  appeal  court  requires  a  rare  combination  of  patience 
and  open  mindedness,  together  with  the  impartial  firmness  which 
must  rest  upon  expert  knowledge  of  the  issues  backed  by  unques- 
tioned personal  integrity.  There  has  been  little  tendency  to 
impugn  the  state  tax  commissions  in  general  on  the  ground  of 
unfairness  or  discrimination  in  their  judgments  in  appeal  cases. 
The  work  of  the  Kansas  commission  in  handling  the  corporate 
appeals  presents  no  especially  marked  features,  unless  such  be 
found  in  the  unusual  amount  of  personal  investigation  which  is 
made  before  reaching  a  decision.^ 

The  Supervision  of  the  Local  Officials 

The  powers  of  supervision  which  the  Kansas  commission  exer- 
cises over  the  local  officials  are  both  advisory  and  mandatory.  In 
most  states  the  former  have  been  of  greater  significance,  if  not  by 
plain  language  of  the  statute,  then  by  the  construction  and  inter- 
pretation which  this  language  has  received  from  the  commission 
and  the  courts.  Advisory  supervision  is  of  great  importance  in 
Kansas,  but  it  constitutes  a  less  significant  portion  of  the  com- 
mission's field  of  authority  than  do  those  powers  in  the  exercise 
of  which  definite  mandatory  supervision  is  conferred. 

The  commission's  advisory  duties  include,  in  the  main,  such 
measures  for  rendering  advice  and  assistance  to  the  local  officials 
as  correspondence,  visits,  and  conferences;  and  the  general  duty 
of  acting  as  expert  adviser  to  ofiicials  and  the  community  at  large 
on  matters  of  taxation.  The  volume  of  correspondence  with  local 
officers  and  taxpayers  has  been  large  and  has  dealt  with  almost 
every  possible  phase  of  the  taxing  system. ^  The  extensive  in- 
quiries into  the  assessed  and  true  value  of  real  estate,  conducted 
by  the  commission  at  the  beginning  of  its  career,  were  of  great 
value  in  setting  before  the  local  officials  a  definite  conception  of 
effective  state  supervision  and  in  educating  the  latter  for  the 
better  performance  of  their  duties.    Considerable  reUance  has 

'  Abstracts  of  the  appeal  cases  were  published  in  the  Reports  for  1908,  pp.  115- 
162;  and  ibid.,  1910,  pp.  52-72,  229-260.  Discontinued  in  1912  for  lack  of  funds 
to  print  the  data. 

2  Kansas  Tax  Commission,  Second  Report  to  the  Legislature,  191 1,  p.  20. 


THE  KANSAS  TAX  COMMISSION  447 

been  placed  upon  personal  contact  with  local  officials,  through 
visits  as  well  as  correspondence;  and  the  regular  prescribed 
visits  of  the  commission  to  the  counties  have  been  supplemented 
by  tours  of  inspection  by  individual  members.  The  tours  of  rail- 
road inspection  are  utiHzed  also  for  establishing  contacts  with 
taxpayers  and  local  officials. 

Frequent  visits  to  the  various  taxing  districts  for  the  purpose  of 
observing  the  work  of  the  local  officials  were  rendered  less  neces- 
sary by  the  provision  of  a  county  assessor.  Since  1869  the  town- 
ship has  been  the  actual  assessment  unit,  an  arrangement  which 
has  favored  the  spread  of  disorder  and  inefficiency  in  the  local 
assessments.  The  law  of  1907  provided  that  each  board  of  county 
commissioners  should  appoint  a  county  assessor  for  a  two-year 
term.  Two  years  later  the  office  of  county  assessor  was  made 
elective  except  in  counties  of  12,000  population  or  less,  in  which 
the  county  clerk  was  to  act  as  the  assessor  ex  officio.^  The  ex 
officio  principle  was  further  extended  in  19 13  by  raising  the  popu- 
lation limit  to  55,000,  though  any  county  might  revert  to  the 
elective  system  by  a  petition  from  the  voters  ordering  an  elec- 
tion.^ As  originally  drawn  in  1907,  the  bill  provided  for  the 
appointment,  by  the  county  assessor  with  the  consent  of  the 
county  commissioners,  of  sufficient  deputy  assessors  to  perform 
the  assessment.  This  feature  was  omitted  at  the  last  moment 
and  the  county  assessor  was  required  to  appoint  the  township 
trustee  as  the  deputy.  Though  the  first  legislation  was  silent  on 
the  point  there  was  apparently  no  expectation  that  these  deputies 
were  to  be  transferred  to  other  than  their  own  districts,  and  an 
amendment  of  1909  made  such  transfer  impossible.^  Since  191 1 
provision  has  existed  for  the  subdivision  of  unduly  large  districts,^ 
but  in  1 9 10  five  county  boards  were  reconvened  on  account  of 
delays  in  making  the  assessment. 

The  county  assessor  is  thus  seen  to  be  in  general  charge  of  the 
assessment,  which  is  really  performed  by  deputies  locally  elected. 
The  assessor  may  require  the  deputies  to  make  a  daily  report  of 
the  personal  property  statements  of  persons  assessed;    and  he 

*  Laws  of  Kansas,  1909,  ch.  251.      ^  General  Statutes  of  Kansas,  1909,  §  9356. 
^  Ibid.,  1913,  ch.  321.  *  Laws  of  Kansas,  1911,  ch.  320. 


448  THE  STATE  TAX  COMMISSION 

shall  instruct  the  deputies  in  their  duties  either  in  personal  visits 
or  in  a  conference  held  before  the  beginning  of  the  assessment 
season.  At  any  time  the  assessor  may  list  and  assess  property 
found  to  have  been  omitted  by  a  deputy.  The  latter  may  be 
suspended  by  the  former  upon  satisfactory  evidence  of  neglect  or 
malfeasance  in  office.  The  final  power  of  removal  is  vested  in  the 
tax  commission.  The  county  assessor  is  removable  by  the  county 
board  or  by  the  tax  commission  on  its  own  motion.  In  either  case 
a  hearing  is  had  before  the  commission,  which  issues  the  final 
removal  order.  Much  credit  for  the  improved  tone  of  affairs  must 
be  given  to  this  authority,  the  potentiality  of  which  has  rendered 
its  actual  exercise  practically  unnecessary. 

The  retention  of  the  township  trustee  as  the  actual  assessing 
officer  could  not  have  been  expected  to  be  a  permanently  satis- 
factory arrangement.  The  legislature's  attempt  to  economize  on 
local  officials  at  this  point  was  particularly  unfortunate,  since 
in  so  far  as  the  candidates  will  be  judged  on  their  merits  the 
qualifications  looked  for  will  be  primarily  those  expected  of  the 
township  trustee.  These  are  not  necessarily  the  qualifications 
appropriate  to  the  successful  assessor.  Even  with  this  feature, 
however,  the  Kansas  county  assessor  has  had  a  position  superior 
to  that  of  the  county  tax  official  in  Indiana,  because  of  his  power 
to  suspend  the  deputies.  But  after  five  years  of  experience  the 
Kansas  commission  has  emphatically  condemned  the  plan,  and  in 
191 2  it  advanced  some  valuable  recommendations  intended  to 
bring  the  county  assessor  into  his  own  again. ^  These  included 
the  abolition  of  the  ex  officio  principle,  placing  the  county  assessor 
in  complete  charge  of  the  county  assessment  with  full  authority 
to  appoint  the  necessary  deputies,  and  provision  for  more  ade- 
quate salaries.  These  suggestions  are  fundamentally  sound  and 
should  be  adopted. 

The  Kansas  commission's  struggle  to  secure  an  appointive 
assessor  in  actual  charge  of  the  local  assessment  is  of  particular 
interest  in  the  light  of  the  collapse  of  the  Ohio  experiment.'^ 

1  Kansas  Tax  Commission,  Third  Report  to  the  Legislature,  1913,  pp.  35-45; 
ibid.,  Fourth  Report,  1915,  p.  16. 
■Cf.  below,  p.  503. 


THE  KANSAS  TAX  COMMISSION  449 

Thus  far  the  people  of  Kansas  have  refused  to  surrender  their 
prerogative  of  local  election  of  the  assessor,  although  their  will- 
ingness to  accept  other  features  of  the  commission's  program  has 
now  led  to  a  rather  serious  administrative  retrogression.  In  1915 
the  commission  presented  two  bills,  one  providing  for  an  appoin- 
tive county  assessor  who  should  assess  all  property  in  the  county, 
taking  a  year  for  the  initial  assessment  of  real  estate.  The  other 
bill  provided  for  a  quadrennial  appraisal  of  real  estate,  with  the 
proviso  that  local  authorities  might  cause  an  intervening  assess- 
ment to  be  made  if  the  public  interest  required  such  action.  The 
first  bill  failed,  the  second  passed,  and  Kansas  now  faces  the  pros- 
pect of  a  quadrennial  assessment  of  real  estate  by  the  present 
assessing  machinery.^ 

Conferences  of  the  county  assessors  have  been  held  biennially, 
as  provided  in  the  law  of  1907.  The  necessary  expenses  of  the 
assessors  at  these  meetings  are  paid  by  the  counties.  The  con- 
ferences have  proved  exceedingly  useful  for  the  development  of 
interest  and  the  dissemination  of  proper  ideals  and  methods  of 
procedure.  Special  efforts  were  made  at  the  first  conference  to 
elucidate  the  law  and  standardize  the  construction  of  difficult 
points.  No  set  programs  have  been  prepared  for  subsequent 
meetings,  which  have  been  occupied  primarily  by  the  tax  com- 
missioners in  answering  questions  and  emphasizing  the  doubtful 
and  difficult  points  in  the  tax  law. 

In  1 9 16  the  commission  pubhshed  one  of  the  most  helpful  and 
useful  manuals  of  instructions  to  assessors  that  has  ever  appeared 
in  the  United  States.  The  tax  law,  so  far  as  it  deals  with  the  work 
of  the  local  assessors,  is  analyzed  point  by  point  and  very  com- 
plete instructions  are  given  as  to  the  exact  procedure  necessary 
in  order  to  make  an  assessment  in  conformity  with  the  law.  The 
various  blank  forms  are  also  explained  in  detail. 

Through  the  mandatory  powers  conferred  upon  the  commission 
the  Kansas  law  provides  for  more  effective  administrative  con- 
trol over  the  tax  system  than  any  other  tax  law  in  the  United 
States  at  the  present  time.  The  commission  may  remove  the 
county  assessor  after  an  investigation  and  upon  causes  estab- 

*  Kansas  Tax  Commission,  Fifth  Report  to  the  Legislature,  191 7,  pp.  69-72. 


450  THE  STATE  TAX  COMMISSION 

lished ;  it  may  order  a  reassessment  of  any  taxing  district,  either 
upon  complaint  or  upon  its  own  motion ;  and  it  may  reconvene  a 
county  board  at  any  time  after  the  same  has  adjourned.  In  such 
cases  the  county  board  may  be  compelled  to  make  any  changes 
which  the  commission  may  regard  as  necessary  to  a  just  equaliza- 
tion. In  addition  to  these  more  drastic  powers  the  commission 
may  exercise  other  powers  of  a  mandatory  nature,  similar  to  those 
enjoyed  by  tax  commissions  in  general.  These  include  the  power 
of  compelling  the  appearance  and  testimony  of  witnesses;  the 
production  of  books  and  papers ;  the  power  to  compel  persons  and 
corporations  to  furnish  needed  details  regarding  the  value  or  the 
nature  of  their  property  or  business,  and  to  compel  public  officers 
to  report  information  relative  to  the  fiscal  system  of  the  state; 
and  finally,  power  to  prescribe  the  forms,  blanks,  and  the  system 
of  keeping  the  records  of  the  assessment,  levy,  and  collection  of 
taxes. 

The  control  over  witnesses,  evidence,  and  blank  forms  is  a 
necessary  adjunct  to  efficient  administration  and  as  such  is 
exceedingly  valuable.  But  the  more  important  authority  is 
undoubtedly  that  of  removing  officials,  ordering  reassessments, 
and  reconvening  county  boards.  The  remarkable  results  which 
have  been  accomplished  in  Kansas  since  1908  have  been  largely 
due  to  the  existence  and  exercise  of  this  authority.  Every  assess- 
ing officer  in  the  state  has  been  desirous  of  avoiding  the  heavy 
hand  of  the  tax  commission. 

Yet  the  power  of  removal  has  been  exercised  conservatively, 
and  a  removal  order  has  never  been  issued  without  the  most  com- 
plete investigation  of  the  case.  Similar  caution  has  been  exercised 
in  the  issue  of  orders  for  reassessment  and  the  reconvention  of  the 
county  boards.^  In  19 10  seven  boards  were  reassembled,  six  of 
which  were  recalled  because  of  insufficient  time  under  the  statute 
to  complete  their  work.^  In  this  respect  the  commission's  power 
has  been  beneficial,  since  the  law  requires  that  the  work  of  a 
county  board  be  completed  within  ten  days.  If  there  be  no  possi- 

1  In  191 5  the  commission  stated  that  it  had  never  issued  a  reassessment  order 
on  its  own  motion.     Report,  1916,  p.  45. 

*  Kansas  Tax  Commission,  Report,  1910,  abstract  of  appeal  docket,  pp.  1 74-181. 


THE  KANSAS  TAX  COMMISSION  45 1 

bility  of  an  extension  the  work  is  crammed  into  the  legal  period, 
but  at  the  expense  of  justice  in  the  equaUzation.  The  fact  that  an 
extension  may  be  granted  thus  promotes  better  work  on  the  part 
of  the  local  board,  although  a  better  remedy  would  be  to  amend 
the  law  by  extending  the  time  allowed  to  the  original  session. 

The  commission's  methods  in  dealing  with  local  tax  districts 
and  its  efforts  to  create  a  sense  of  local  responsibility  for  better 
assessments  may  be  illustrated  from  the  following  appeal  for  a 
reassessment.^  In  a  certain  case  the  first  returns  from  the  county 
were  unsatisfactory  and  a  tentative  correction,  with  radical 
advances,  was  issued  by  the  commission  "  as  a  challenge  to  the 
people  of  Labette  county."  The  challenge  proved  effective  and 
the  order  was  appealed  from ;  a  rehearing  was  granted  and  a  new 
order  issued.  In  the  final  decision  the  commission  described  its 
procedure  in  reassessment  cases  as  follows :  ^ 

The  testimony  introduced  at  the  hearings;  the  general  knowledge  of  the 
Board  in  relation  to  values  acquired  from  county  assessors  and  county 
boards  of  equalization,  who  for  a  period  of  two  weeks  were  daily  before  the 
Board;  the  statistics  showing  the  relative  value  of  agricultural  and  other 
products  as  compared  with  other  counties  of  like  acreage  and  population 
with  Labette;  the  assessment  of  property  in  cities  over  the  state,  similar  in 
size  to  the  cities  of  Labette  county.  .  .  . 

This  method  of  reviewing  assessments  differs  from  that  used  by 
the  Wisconsin  and  Michigan  commissions.  In  addition  to  the 
local  hearings  and  general  investigation  of  conditions,  the  latter 
employ  efficient  assessors  from  other  counties  to  reassess  all  or  a 
part  of  the  property  in  question,  and  the  ratio  thus  obtained  is 
applied  to  the  original  assessments  of  the  district  or  county.  Such 
a  method  is  superior  to  the  more  general  sources  of  information 
resorted  to  by  the  Kansas  commission,  for  which  a  more  elaborate 
investigation  is  impossible  for  financial  reasons.^ 

We  come  now  to  examine  the  results  of  supervision  of  the 
original  assessment.  Has  the  Kansas  commission,  with  its  exten- 
sive powers  and  vigorous  administration,  been  able  to  secure  the 
assessment  of  all  property  at  its  full  value  in  money  ?    In  other 

1  Kansas  Tax  Commission,  Report,  1908,  p.  190.  2  jii^^ 

'  In  1915  the  commission  employed  special  assessors  to  make  the  reassessment 
which  had  been  ordered  in  one  township.    Report,  1916,  p.  45. 


452 


TEE  STATE  TAX  COMMISSION 


words,  has  the  general  property  tax  been  reformed  in  Kansas  by 
the  sweeping  administrative  improvements  ? 

Some  light  has  been  thrown  on  this  inquiry  in  the  discussion  of 
the  commission's  work  as  a  board  of  equaHzation.^  It  was  there 
found  that  inequalities  still  remained  in  the  assessment  of  lands, 
chiefly  due  to  the  restrictions  under  which  the  tax  commission  has 
been  compelled  to  work.  The  commission  has  recognized  this 
condition  and  has  consistently  urged  the  legislature  to  change  the 
machinery  of  assessment  in  order  to  insure  a  more  uniform  and 
efficient  assessment  of  all  property,  and  especially  real  estate.  A 
more  significant  test  of  the  operation  of  the  general  property  tax 
under  centralized  administration  is  found  in  the  results  of  the 
assessment  of  personal  property.  For  this  purpose  the  general 
range  of  valuations  will  first  be  noted,  and  then  attention  will  be 
turned  to  the  detailed  results  of  the  personal  property  assessment. 
The  equahzed  assessments  of  all  property  since  1907  follow:  ^ 

Equalized  Assessments  of  Property  in  Kansas,  1907-16 
(millions  of  dollars) 


1916 


Lands 

Lots 

Total  real  estate  .  .  . 

Personalty 

Public    service    corpora- 
tions   

Grand  total 


78 


II7S-S 
360.3 


1210.2 
377-6 


1353-2 

424.6 


1535-9 
474-1 
404.4 


1587-8 
505-1 
416.4 


2414-3 


2512.9 


1777.8 
554-2 
420.1 

2752.1 


1793 
556 


1358-I 
440-3 


1365-5 
445-7 


1394- 1 
441.2 


1393.9 
450.3 


1447.9 
457-9 


1798-4 
517-4 
431-2 


562.5 
436.1 


1835.3 
525-5 
440-9 


1844.2 
607.8 
432.6 


2746.9 


2809.8 


2804.8 


2884.6 


1905.8 
635.3 
439-8 

2980.9 


These  are  phenomenal  results  to  be  achieved  with  so  little 
friction  and  difficulty.  The  commission  secured  the  passage  of  a 
law  Umiting  the  tax  levies,  except  for  sinking  fund  and  interest 
charges,  special  assessments,  and  the  necessary  charges  involved 
by  any  plan  for  the  construction  of  county  roads  under  a  former 
act.^  Some  hmitation  on  the  levying  power  was  the  necessary  and 
logical  step  in  connection  with  any  material  advance  in  valua- 

^  Cf.  above,  pp.  428-433. 

*  Compiled  from  the  biennial  reports  of  the  tax  commipsion. 

^  Laws  of  Kansas,  1908,  ch.  78;  also,  Laws  of  Kansas,  1909,  ch.  245. 


THE  KANSAS  TAX  COMMISSION  453 

tions,  since  many  of  the  localities  had  adjusted  their  levies  to  the 
old  status  of  assessments.  The  commission  has  not  believed  that 
this  compulsory  reduction  in  tax  rates  had  any  influence  upon  the 
valuations  in  1908,  an  increase  which  the  chairman  interpreted  as 
having  been  secured  by  the  assessors  acting  under  instructions  to 
assess  at  full  value  rather  than  under  the  spur  of  local  necessity.^ 
This  view  is  more  flattering  to  the  assessors,  but  it  is,  in  reahty, 
an  open  question  as  to  how  far  the  increase  in  valuation  has  come 
simply  by  raising  the  valuation  of  the  property  formerly  on  the 
duplicate  and  how  far  by  a  more  complete  inventory  of  all  tax- 
able property.  In  the  case  of  real  estate  there  has  been  a  fairly 
complete  assessment,  without  question;  but  in  the  case  of  some 
forms  of  personal  property,  there  is  considerable  doubt  if  much 
improvement  has  been  effected,  either  in  the  amount  listed  or  in 
the  valuation.  This  will  appear  more  fully  from  a  consideration 
of  the  details  of  the  personal  property  figures,  which  are  given  in 
an  appendix  to  this  chapter.^ 

It  is  evident  from  the  gaps  in  the  record  for  1907  that  some 
revision  of  the  system  was  sadly  needed.  From  1908  to  191 1  the 
total  assessment  of  tangibles  and  intangibles  preserved  roughly 
the  relation  of  two  to  one,  even  with  considerable  increases  in 
each  class.  In  191 2  this  proportion  was  disturbed  by  the  decline 
in  the  assessed  valuation  of  farm  animals  and  farm  products,  due 
to  crop  failures  in  191 1.  The  census  valuation  of  farm  animals  for 
April  15,  1910,  was  $245,926,421,  so  that  after  allowing  for  dif- 
ferences in  the  number  of  animals  valued  in  the  two  appraisals  and 
for  the  cost  of  marketing,  this  class  of  property  was  fairly  well 
assessed.  Data  are  not  available  by  which  to  check  the  assess- 
ment of  the  other  classes  of  tangible  personalty.  It  is  signifi- 
cant, however,  of  the  unequal  pressure  of  the  uniform  rule  that 
about  one-tenth  of  the  entire  group  of  tangibles  has  been  com- 

*  Letter  from  Mr.  S.  T.  Howe,  Dec.  6,  1913.  In  subsequent  correspondence  and 
in  the  published  reports  the  commission  has  been  inclined  to  emphasize  the  influence 
of  the  local  desire  to  shift  state  taxes  in  depressing  valuations  rather  than  the  in- 
fluence of  the  tax  limit  law  in  keeping  them  up.  Letter  from  S.  T.  Howe,  June  i, 
1916,  and  Kansas  Tax  Commission,  Fifth  Report  to  the  Legislature,  igiy,  p.  71. 

'  Compiled  from  data  in  the  biennial  reports  of  the  Kansas  Tax  Commission. 
Cf.  below,  p.  457. 


454  THE  STATE  TAX  COMMISSION 

posed  of  virtually  unproductive  property  such  as  household 
effects,  watches,  books,  and  musical  instruments.  This  percent- 
age is  lowered  in  191 5  and  1916  by  the  marked  increase  in  the 
assessment  of  live  stock,  vehicles  and  farm  products. 

The  most  important  items  of  the  intangible  group  are  moneys, 
credits  and  mortgages ;  but  in  the  case  of  mortgages  only  can  the 
showing  be  considered  at  all  satisfactory.  A  sHght  gain  was  made 
in  the  amount  of  moneys  assessed  to  19 10,  but  in  19 14  the  total 
was  somewhat  below  that  for  1908.  Meantime  the  total  individ- 
ual deposits  in  banks  (including  savings  and  time  deposits)  had 
risen  from  $126,800,000  in  1908  to  $232,386,000  in  1916.^  The 
changes  in  the  amount  of  credits  assessed  have  been  unimportant 
except  for  the  small  gain  made  in  191 6.  It  is  impossible  to  test  the 
assessment  of  this  class  by  comparative  data,  but  the  right  of 
deducting  debts  from  credits  is  an  argument  against  any  higher 
basis  of  assessment  than  appears  to  have  been  used  in  the  assess- 
ment of  money. 

The  Usting  of  mortgages  has  been  more  satisfactory  and  the 
steady  increase  of  these  figures  is  in  marked  contrast  to  the  ex- 
perience of  the  Michigan  board  of  tax  commissioners. ^  The 
increase  of  mortgages  assessed  in  Kansas  has  been  largely  due  to  a 
thorough  system  of  tracing  ownership  and  a  fearless  pohcy  of 
assessment  when  found.  The  commission's  activity  in  this  work 
contributed  to  a  premature  reaction  against  the  injustice  of  the 
uniform  rule.  Without  modifying  the  constitutional  provisions 
relating  to  taxation  the  legislature  adopted  a  mortgage  registry 
tax,  to  be  levied  in  lieu  of  all  other  taxes.  The  special  treatment 
of  mortgages  is  sound  in  principle  but  the  Kansas  court  of  neces- 
sity rejected  the  mortgage  registry  tax  as  a  violation  of  the 
uniform  rule  of  the  constitution.  This  conclusion  was  inevitable, 
though  the  court  accepted  at  its  face  value  the  evidence  intro- 
duced to  prove  the  escape  of  the  major  portion  of  the  taxable 
mortgage  indebtedness  owned  by  citizens  of  the  state.^  Whenever 
the  state  constitution  contains  the  uniform  rule,  tax  reform  must 
begin  with  the  amendment  of  the  organic  law. 

*  Comptroller  of  the  Currency,  Report,  1916. 

*  Cf.  above,  ch.  9.  '  90  Kansas,  50. 


THE  KANSAS  TAX  COMMISSION  455 

The  amounts  of  corporation  and  bank  stock  are  matters  of 
public  record  and  the  increases  that  have  been  made  in  these 
figures  are  evidence  neither  of  the  reform  of  the  general  property- 
tax  nor  of  eflGiciency  in  listing  sequestered  property.  The  item 
"  stocks  and  bonds,"  which  includes  the  returns  of  individuals, 
reveals  the  same  tendencies  as  have  been  observed  in  the  case  of 
moneys  and  credits.  While  these  figures  reflect  in  many  respects 
the  energy  and  diligence  of  the  tax  commission  in  its  efforts  to 
improve  the  listing  and  valuation  of  personal  property,  yet  it 
must  be  concluded  that  the  general  property  tax  in  Kansas 
remains  as  defective  as  ever  and  that  all  of  the  administrative 
improvements  have  not  sufficed  to  correct  the  weaknesses  which 
have  been  apparent  during  the  past  generation.  The  elaborate 
extension  of  the  Hst  of  both  tangible  and  intangible  items  has 
found  no  justification  in  the  increases  that  have  been  made,  for 
the  assessor  and  the  taxpayer  between  them  have  found  ample 
opportunity  for  evasion  and  undervaluation.  It  is  not  denied 
that  the  results  of  centralized  administration  in  Kansas  have  been 
creditable,  under  the  circumstances.  Kansas,  a  primarily  rural 
state,  taxes  more  personal  property  than  New  York.  But  the 
showing  is  not  such  as  to  warrant  any  hopeful  inferences  to  be 
drawn  concerning  the  future  of  the  general  property  tax  under 
centralized  administration.  It  is,  and  apparently  will  continue 
to  be,  a  failure. 

Uniform  Auditing  and  Accounting  Systems 

The  act  of  1907  required  the  commission  to  inquire  into  the 
systems  of  accounting  and  auditing  of  public  funds  then  in  use  in 
cities,  towns,  and  counties,  and  to  prescribe  a  uniform  system. 
The  commission  adopted  a  system  which  had  been  developed  by  a 
public  accountant,  and  which  had  already  been  adopted  by  forty- 
four  counties.^  By  1914  the  system  was  reported  in  use  in  all  or 
parts  of  ninety-nine  counties.  The  commission  now  recommends 
the  establishment  of  a  separate  state  accounting  department 
with  more  adequate  equipment  for  the  installation  and  super- 

'  Kansas  Tax  Commission,  Second  Report  to  the  Legislature,  1911,  pp.  28-31. 
Also  Kansas  Tax  Commission,  Report,  1910,  pp.  172,  173. 


456  THE  STATE  TAX  COMMISSION 

vision  of  proper  accounting  and  auditing  systems.^  This  sugges- 
tion is  an  indication  that  the  present  duties  of  the  tax  commission 
are  absorbing  practically  its  whole  attention  and  energy,  and  that 
further  extensions  of  the  poUcy  of  administrative  supervision 
upon  which  the  state  has  entered  should  be  met  by  an  adequate 
expansion  of  the  state's  administrative  organization. 

Recommendations 

The  Kansas  commission  follows  the  Wisconsin  commission's 
plan  of  discussing  many  subjects  in  its  various  reports,  in  order  to 
keep  these  questions  before  the  people,  while  it  proposes  only  a 
small  number  of  bills  upon  which  legislative  attention  is  concen- 
trated. It  acts,  in  addition,  as  a  reference  bureau  upon  questions 
relating  to  the  state  finances,  and  frequently  supplies  committees 
with  opinions  or  materials  upon  propositions  before  the  latter.  In 
191 2  the  commission  prepared  bills  upon  but  four  measures. 
In  addition  it  discussed  the  following  points  but  made  no  recom- 
mendations thereon  to  the  legislature :  ^ 

1.  Increasing  tax  burden. 

2.  The  division  of  total  assessment  among  classes  of  property. 

3.  Compilations  of  tax  data. 

4.  Uniform  accounting. 

5.  Tax  systems  of  other  states. 

6.  Classification  of  real  estate. 

7.  Tax  commissions. 

8.  The  National  Tax  Association  and  its  annual  conferences. 

9.  The  Pullman  Company  Tax. 
10.  Taxation  of  mortgages. 

In  the  latest  report  to  the  legislature,  dated  January  8,  191 7,  the 
commission  reviews  its  former  discussion  of  these  topics  and  sug- 
gests that  it  has  prepared,  or  will  prepare,  such  bills  on  any  of 
them  as  will  embody  its  specific  recommendations  for  reform  in 
the  Kansas  tax  system.^ 

^  Kansas  Tax  Commission,  Fourth  Report  to  the  Legislature,  1915,  p.  iS. 

2  Ibid.,  Third  Report  to  the  Legislature,  1913,  p.  85.  The  Commission  recom- 
mended bills  on  a,  a  constitutional  amendment;  b,  an  amendment  to  the  inheritance 
tax  (the  whole  measure  was  repealed  in  1913);  c,  a  county  assessor;  and  d,  the  col- 
lection of  mortgages  statistics. 

'  Ibid.,  Fifth  Report  to  the  Legislature,  1917,  p.  72. 


THE  KANSAS  TAX  COMMISSION 


457 


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CHAPTER  XIV 

THE  OREGON  STATE  TAX  COMMISSION  i 

Oregon's  experience  with  the  general  property  tax  during  the 
long  period  of  administrative  decentralization  was  very  similar 
to  that  of  the  states  farther  east.  The  comparatively  simple 
economic  conditions  which  prevailed  in  the  first  generation  of 
statehood  were  not  a  sufficiently  favorable  environment  to  per- 
mit the  development  of  the  general  property  tax  free  from  the 
fatal  defects  which  have  been  universally  encountered.  By  1885 
a  special  tax  commission  had  been  created  to  study  conditions 
which  have  been  summed  up  thus  by  one  writer :  ^ 

Undervaluation  of  realty,  escape  of  personalty,  fraud  resulting  from  de- 
duction of  debts  from  total  valuation,  light  taxes  upon  corporations,  and 
poor  administration  of  the  laws.  .  .  . 

This  indictment  of  the  Oregon  tax  system  is  monotonously 
familiar;  it  could  have  been  brought  against  the  tax  system  of 
any  state  east  of  the  Rocky  Mountains  at  that  time.  Such  evi- 
dence of  decay  in  the  general  property  tax  in  a  state  so  remote 
from  the  great  centers  of  wealth  and  population  indicates  that  the 
disease  with  which  this  system  of  taxation  was  afflicted  was  con- 
genital. The  special  commission  of  1885  recommended  several 
significant  reforms,^  including  on  the  administrative  side  pro- 
posals for  a  state  board  of  equalization,  the  appointment  of 
deputy  assessors  by  the  county  court,  and  the  substitution  of  the 
county  commissioners  for  the  assessors  as  the  county  board  of 
review.   The  same  problems  were  dealt  with  by  a  second  special 

1  Formerly  the  State  Board  of  Tax  Commissioners.  Title  changed  by  laws  of 
Oregon,  1913,  ch.  359. 

^  Cf.  Chapman,  op.  cit.,  p.  70. 

'  The  report  is  reviewed  by  Chapman,  op.  cit.,  pp.  70,  71.  A  state  board  of 
equalization  had  been  established  in  1871  but  it  proved  incapable  of  accomplishing 
anything  further  than  the  acceleration  of  undervaluation,  and  it  was  dropped  in 
1874.  Cf.  Gilbert,  "  Tax  Apportionment  in  Oregon,"  Pol.  'Sci.  Quart.,  xxvi,  pp. 
271  ff. 

458 


THE  OREGON  TAX  COMMISSION  459 

tax  commission,  reporting  in  1891,  but  the  recommendations  of 
this  body  were  less  concerned  with  administrative  reform  than 
with  changes  in  specific  features  of  the  tax  system.^ 

The  continuance  of  undervaluation  led  finally  to  the  reestab- 
hshment  of  a  state  board  of  equalization  in  1891.^  This  board  was 
invested  with  no  effective  powers  of  equalization  and  competitive 
undervaluation  waxed  even  more  severe  during  its  brief  adminis- 
tration. It  was  aboUshed  in  1898,^  and  the  general  verdict  upon 
its  work  was  thus  expressed  by  the  third  special  tax  commission, 
reporting  in  1906: '' 

The  workings  of  the  state  board  of  equalization  were  found  to  result  in 
greater  inequality  than  resulted  from  taking  the  assessments  made  by  the 
various  assessors  without  equahzation,  as  chance  would  have  them  be. 

The  intolerable  features  of  the  old  system  still  persisted,  even 
after  the  abandonment  of  the  state  board  of  equalization,  and  in 
1 90 1  the  legislature  provided  for  a  fixed  apportionment  of  the 
state  tax  among  the  counties  upon  the  basis  of  the  average 
assessed  valuations  of  the  five  years  preceding.  This  schedule  was 
to  continue  in  force  until  1905  when  a  method  of  apportionment 
based  on  county  expenditures  was  to  be  instituted.^  The  plan 
contemplated  the  use  of  the  average  expenditures  for  the  preced- 
ing five-year  period,  and  excluded,  at  first,  expenditures  for  roads; 
later,  expenditures  for  county  courthouses,  outlays  caused  by 
pestilence  or  epidemics,  and  payments  of  interest  and  principal  on 
county  debts.  In  general  the  tendency  was  to  exclude  invest- 
ments and  extraordinary  expenditures  and  to  base  the  apportion- 
ment upon  current  expenditures.^  No  apportionment  was  ever 
actually  made  on  the  basis  of  expenditures.  The  plan  was  post- 
poned first  until  1910  and  later  until  191 2,  and  in  the  meantime  it 
was  held  invahd  on  account  of  constitutional  limitations.^   With 

'  Cf.  Chapman,  op.  cit.,  pp.  71,  72. 

^  Laws  of  Oregon,  1891,  p.  182.  Previous  to  1907  the  Oregon  session  laws  were 
not  arranged  according  to  chapters  and  the  citations  are  to  the  page  on  which  the 
law  referred  to  begins.  The  customary  method  of  arrangement  was  introduced  in 
this  year.    Ihid.,  1907,  p.  5. 

3  Ihid.,  1898,  p.  15.  '  Described  in  j6m/., pp.  68 ff. 

*  Report  0}  the  Board  of  Commissioners,  1906,  p.  67.      *  Gilbert,  loc.  cit.,  p.  277. 

'  Yamhill  County  v.  Foster,  53  Oregon,  124. 


460  THE  STATE  TAX  COMMISSION 

the  last  postponement,  in  1907,  the  legislature  adopted  again  the 
old  system  of  apportionment  on  the  basis  of  the  county  ratios 
which  had  been  prepared  in  1901.  This  method  was  adjudged 
unconstitutional  in  1909  as  a  violation  of  the  uniformity  clause, 
but  the  special  tax  commission  of  1906  expressed  the  belief  that 
under  it  "  substantial  equahty  "  had  been  attained  in  1905.^  The 
legislature,  then  in  session,  hastily  constituted  the  governor, 
treasurer,  and  secretary  of  state  a  special  board  of  equalization 
and  requested  it  to  assume  the  disagreeable  duty  of  affording  relief 
from  the  discomforts  of  the  former  makeshifts  at  equalization. ^ 

In  the  same  session  provision  was  made  for  a  permanent  tax 
commission  to  be  composed  of  the  three  elective  state  officers 
appointed  to  the  temporary  board  of  equalization  and  two  mem- 
bers chosen  by  the  governor  on  a  partizan  basis.^  This  form  of 
organization  had  been  recommended  by  the  special  commission 
of  1906,  to  whom  the  advantages  of  economy,  by  utilizing  the 
state  officers,  appealed  strongly.^  It  was  expected  that  the  two 
appointive  members  would  be  experts  who  would  solve  all  of  the 
difficult  problems  and  do  most  of  the  active  work;  and  in  prac- 
tice these  anticipations  have  been  fulfilled.  It  was  not  foreseen 
that  the  ex  officio  members,  who  constituted  a  majority  of  the 
board,  might  possibly  be  led  to  obstruct  the  attempts  of  the 
expert  members  at  efficient  and  unbiassed  administration.  It  is 
an  open  secret,  however,  that  such  has  been  the  outcome;  and 
the  fond  theory  of  the  creators  of  this  scheme,  that  the  elective 
officers  were  more  closely  accountable  to  the  people  and  hence 
should  be  in  the  majority,  has  resulted  in  the  occasional  sacrifice 
of  efficiency  to  political  expediency. 

The  law  of  1909  required  the  board  of  tax  commissioners  to  per- 
form the  state  equalization,  to  assess  certain  classes  of  corpora- 
tions, to  exercise  general  supervision  over  the  tax  system,  and  to 
make  such  recommendations  as  seemed  desirable  after  a  study  of 
the  tax  systems  of  other  states. 

1  Report  of  the  Board  of  Commissioners ,  1906,  p.  70. 

*  Laws  of  Oregon,  1909,  ch.  14. 
»  Ibid.,  ch.  218. 

*  Report  of  the  Board  of  Commissioners,  1906,  p.  45. 


THE  OREGON  TAX  COMMISSION  46 1 

Equalization 

The  first  equalization  undertaken  by  the  new  board  was  for  the 
year  1910,  on  the  basis  of  the  local  returns  for  1909.  In  preparing 
for  this  task  a  new  variant  of  the  sales  method  was  developed. 
Data  were  collected  from  the  county  records  concerning  some 
30,000  sales  of  real  property  by  warranty  deed,  all  of  the  sales 
having  occurred  in  the  year  ending  March  i,  1909.  No  sale  was 
used  in  which  the  stated  consideration  was  less  than  $100.  The 
number  of  sales  from  each  county  ranged  from  200  in  the  smaller 
counties  to  some  9000  in  Multnomah  county,  containing  the 
city  of  Portland.  The  board  described  the  computation  of  the 
ratio  as  follows :  ^ 

The  assessed  valuation  of  each  parcel  of  property  for  the  year  was  then 
secured.  Thereafter  the  lists  were  carefully  checked  and  all  sales  wherein 
the  consideration  appeared  to  be  nominal  or  fictitious  were  eliminated.  In 
preparing  the  record,  sales  and  assessments  of  rural  or  urban  and  of  town 
or  city  property  were  separately  considered.  The  total  number  of  sales 
finally  used  was  about  19,200.  The  ratio  for  each  county  was  secured  by 
dividing  the  total  of  assessments  by  the  total  of  considerations  of  the  same 
property  therein. 

In  subsequent  equalizations  practically  the  same  method  has 
been  followed  except  that  a  three-year  period  has  been  used  and 
all  sales  have  been  rejected  in  which  the  stated  consideration  was 
less  than  $500.  It  is  clear  that  this  test  has  ehminated  only  those 
transactions  known  as  "  dollar  sales,"  and  that  it  has  afforded  no 
guarantee  that  the  higher  sum  recorded  was  the  amount  actually 
paid.  Since  the  commission  was  compelled,  for  lack  of  funds,  to 
depend  altogether  upon  the  inspection  performed  in  the  central 
office  for  the  ehmination  of  improper  data,  the  earlier  Oregon 
sales  ratios  were  of  doubtful  accuracy.  In  recent  years  the 
appropriations  for  the  department  have  been  materially  increased 
and  a  considerable  amount  of  field  inspection  and  ehmination 
has  been  done  in  the  course  of  collecting  the  later  sales  data. 
The  Oregon  commission  has  not  relied  upon  its  sales  ratios  as  the 
exclusive  guide  to  a  proper  equahzation,  but  has  supplemented 
them  by  data  collected  in  other  ways. 

1  State  Board  of  Tax  Commissioners,  Report,  191 1,  p.  8. 


462  THE  STATE  TAX  COMMISSION 

One  of  the  supplementary  sources  of  information,  though  not 
a  wholly  reKable  one,  has  been  the  statements  made  by  appKcants 
for  loans  from  a  state  fund  from  which  such  assistance  has  often 
been  given.  These  applications  contain  a  statement  of  the  as- 
sessed value,  the  prospective  borrower's  estimate  of  the  value, 
and  the  appraisal  by  the  state  loan  agent  who  has  investigated 
the  quality  of  the  security  offered  and  the  character  of  the  appli- 
cant. While  in  general  there  would  be  a  tendency  for  borrowers 
to  overstate  the  value  of  their  property  when  the  motive  was  a 
loan  based  upon  that  value,  yet  the  correction  made  by  the  state 
agent  provides  a  fairly  satisfactory  check  to  such  overstate- 
ments. No  direct  use  has  been  made  of  these  data  in  construct- 
ing the  ratios,  but  they  have  been  of  value  as  a  guide  in  the  use 
which  has  been  made  of  the  percentages  compiled  from  the  sales 
data. 

The  methods  followed  in  the  equaHzation  of  personal  property 
have  been  much  more  indefinite.  With  regard  to  live  stock  the 
board  has  proceeded  upon  the  assumption  that  substantial 
equality  could  be  obtained  by  equalizing  on  a  per  capita  basis, 
"  taking  into  consideration  natural  differences  in  values  for  dif- 
ferent sections  of  the  state."  ^  The  means  of  ascertaining  these 
natural  differences  in  values  are  not  described.  Regarding  other 
classes  of  personal  property,  both  tangible  and  intangible,  it  has 
been  stated  that  the  equaKzation  "  depends  on  such  information 
and  data  regarding  assessment  methods  as  the  Board  is  able  to 
secure  and  as  may  be  exhibited  by  the  summaries  of  assessment 
rolls."  ^  The  latter  source  of  information  is  apt  to  be  rather  bar- 
ren. In  1909  the  assessors  of  the  state  were  summoned  before  the 
commission  and  questioned  with  regard  to  their  methods  of  assess- 
ment and  standards  of  value.  But  information  from  this  source, 
unsupported  by  other  reliable  evidence,  would  hardly  be  a  safe 
guide  to  follow;  for  it  has  been  the  general  experience  that  a 
part,  at  least,  of  the  variations  in  the  standard  of  valuation  has 
been  traceable  to  the  assessor's  ignorance  of  the  true  values  of  the 
properties  assessed. 

1  State  Board  of  Tax  Commissioners,  Report,  1909,  p.  9. 
»  Ihid. 


THE  OREGON  TAX  COMMISSION  463 

The  state  equalization  in  Oregon  extends  only  to  the  totals  for 
the  counties  and  does  not  affect  at  all  the  results  within  the  county 
for  local  taxation  purposes.  The  original  assessments  of  individ- 
uals are  first  equalized  within  the  county  by  a  county  board  of 
equaUzation  consisting  of  the  county  clerk,  assessor  and  judge. 
Appeals  from  the  action  of  this  board  go,  not  to  the  tax  commis- 
sion, but  to  the  circuit  court  of  the  county.  It  is  impossible  to 
afford  relief  to  individuals  or  even  to  taxing  districts  through  the 
state  equalization  and  the  fundamental  problem  of  central  super- 
vision is  therefore  still  untouched  by  the  reform  measures  thus 
far  enacted.  All  that  the  board  attempts  to  do,  under  the  cir- 
cumstances, is  to  attain  equahty  ainong  the  several  counties  for 
the  distribution  of  the  state  tax,  and  this,  it  believes,  has  been 
accompKshed.  As  evidence  of  this  achievement  the  board  cites 
the  increase  in  total  valuation  which  has  been  eflfected  and  also  the 
asserted  fact  that  competition  to  reduce  valuations  has  practi- 
cally ceased.^  The  use  of  a  ratio,  even  though  it  is  not  scientifi- 
cally accurate,  has  had  the  effect  often  of  discouraging  deliberate 
undervaluation,  since  the  certainty  that  some  corrective  would  be 
appHed  to  the  figures  diminished  by  so  much  the  local  official's 
temptation  to  disregard  the  law.  The  heavy  burden  of  county 
taxes  remains,  however,  a  suflScient  incentive  to  undervaluation 
on  the  part  of  those  persons  who  may  desire  to  evade  a  part  of 
their  just  burden.  In  19 13  the  aggregate  state  tax  collected  from 
general  property  was  $2,541,196,  while  the  total  taxes  on  the 
same  property  for  county  purposes  were  $7,377,705.^ 

The  mere  fact  of  an  increase  in  the  assessed  valuations  is  not 
positive  evidence,  per  se,  of  greater  equality  of  assessments, 
though  it  may  indicate,  as  the  board  has  suggested,  that  com- 
petitive undervaluation  has  been  checked.  The  board's  argument 
proves  little,  for  valuations  might  have  risen  even  more  rapidly 
had  there  actually  been  no  attempt  in  any  tax  district  to  hold 
them  down.  The  general  results  of  the  state  equalization  will 
now  be  examined  for  such  evidence  as  may  be  found  of  the 
tendency  toward  greater  equality,  and   for  that  purp>ose  the 

^  State  Board  of  Tax  Commissioners,  Report,  igii,  pp.  9,  10;  ibid.,  1915,  p.  7. 
*  Bureau  of  the  Census,  Wealth,  Debt  and  Taxation,  1913,  ii,  pp.  36,  182. 


464 


THE  STATE  TAX  COMMISSION 


aggregate  assessment  of  different  classes  of  property  for  certain 
years  is  given  below.^ 

There  was  no  state  equalization  in  igoo  or  1905,  the  state  tax 
being  apportioned  on  the  local  figures  in  the  former  year  and  in 
the  latter  year  on  the  basis  of  the  county  percentages  established 
in  1 90 1.  The  three  years  following  1905  show  a  total  increase  in 
real  property  of  almost  100  per  cent,  the  bulk  of  which  was 
borne  by  non tillable  lands  and  town  and  city  lots.  The  increase 
of  62.7  per  cent  in  population  from  1900  to  1910,  together  with  the 
consequent  rapid  development  of  the  agricultural  resources  of  the 

Assessed  Valuation  of  all  Property  in  Oregon,  1900-14 
(millions  of  dollars) 


Class  of  property 

1900 

190S 

1908 

1909 

191 2 

1913 

1914 

Tillable  lands 

24-3 
20.8 

S3-I 
52.5 

13.0 
79.2 

40.2 
56.4 
23-5 

67.9 
162.9 

20.3 
145.6 

60.9 
97.0 
43-4 

135-5 
139.8 

21.9 
158.5 

68.1 

109.1 

60.6 

231.9 
108.0 

23-9 
225.8 

83-8 
118.2 
111.9 

236.9 
126.6 

25-0 
233-9 

91.0 
118.5 
119.0 

221.5 

Non  tillable  lands 

115.2 

Timber  lands    

26.9 

Improvements  on  lands 

Town  and  city  lots 

7-4 
21.9 

13.6 

28.9 

8.7 

25.7 
232.1 

Improvements  on  town  and 
city  lots        

93.4 

Total  personalty 

no. 7 

Public  utilities 

126.2 

Grand  total 

125.7 

309-3 

598.1 

694.7 

905-0 

954.3 

953-6 

state,  have  produced  a  phenomenal  advance  in  land  values,  both 
rural  and  urban. ^  It  is  significant,  however,  that  the  greatest 
increase  in  assessments  from  1900  to  1908  fell  upon  nontillable 
lands.  It  is  impossible  now  to  say  whether  this  was  due  to  the 
rapid  appreciation  in  the  value  of  the  timber  lands,  which  are 
included  in  this  class,  or  to  discriminatory  assessments  of  these 
lands.  The  temporary  board  of  equalization  reduced  this  class 
in  1909,  and  the  tillable  lands  were  heavily  increased.  The 
assessments  since   1909  have  resulted,   generally  speaking,   in 

1  From  Report  of  the  Board  of  Commissioners,  1906,  p.  202,  and  the  biennial 
reports  of  the  tax  commission. 

2  The  census  valuation  of  the  land  in  farms  rose  from  $113,000,000  in  1900  to 
$411,000,000  in  1910,  or  263.9  per  cent.    13th  Census,  vii,  p.  396. 


THE  OREGON  TAX  COMMISSION  465 

further  reduction  of  the  nontillable  lands  and  in  further  increases 
in  the  class  of  tillable  lands.  In  1913  the  former  class  was  in- 
creased by  some  $18,000,000,  principally  in  the  heavily  timbered 
counties  of  the  mountain  section.  The  decline  in  the  assessment 
of  both  classes  in  19 14  appears  to  have  been  the  result  of  classify- 
ing timber  lands  separately,  and  of  transfers  from  the  tillable  to 
the  nontillable  group. ^ 

Less  successful  have  been  the  board's  efforts  to  advance  the 
aggregate  of  personal  property.  The  absolute  increase  has  been 
small,  and  in  comparison  with  real  estate  the  personalty  assess- 
ment of  1 9 14  is  a  smaller  percentage  of  the  total  than  that  of 
1908.  Neither  state  equalization  nor  state  supervision  of  the 
original  assessment,  as  practiced  in  Oregon,  has  been  adequate 
to  check  the  progressive  evasion  of  certain  forms  of  personal 
property.  The  details  of  the  personal  property  assessment  will  be 
taken  up  below;  it  is  of  importance  here  to  note  that  a  greater 
share  of  the  total  tax  burden,  state  and  local,  has  been  shifted  to 
real  property.  This  result  will  not  be  displeasing  to  a  certain  tax 
reform  party  in  Oregon,  which  has  been  working  to  secure  com- 
plete exemption  of  personalty.  There  is  no  need  here  to  pass 
upon  the  justice  of  that  tax  program ;  but  judged  from  the  stand- 
ard of  the  general  property  tax  —  the  legal  tax  system  in  Oregon 
—  this  result  can  hardly  be  viewed  with  satisfaction. 

Inasmuch  as  the  process  of  equalization,  in  Oregon,  concerns 
only  the  readjustment  of  county  totals  for  the  purpose  of  appor- 
tioning the  state  tax,  a  more  valuable  test  of  the  board's  work  is 
to  be  found  in  the  adjustment  of  the  state  tax  burden  among  the 
counties.  In  this  respect  some  improvement  has  apparently  been 
made  over  the  basis  of  apportionment  established  by  the  legisla- 
ture in  1 90 1.  Evidence  of  this  is  found  in  the  transfer  of  a  greater 
proportion  of  the  state  tax  to  the  wealthier  and  more  highly 
developed  counties.  The  table  at  the  end  of  this  chapter  shows 
the  average  census  value  of  farm  lands  per  acre  in  1900  and  in 
1910,  together  with  the  percentage  of  the  state  tax  borne  by  each 
county  under  the  legislative  apportionment  of  190 1  and  under  the 
state  equalization  of  191 2. ^  From  this  table  it  will  be  noticed 
^  Cf.  Oregon  Tax  Commission,  Report,  1915,  p.  59.         ^  Cf.  below,  p.  478. 


466  THE  STATE  TAX  COMMISSION 

that  the  more  recent  equalization  has  shifted  a  greater  proportion 
of  the  state  tax  to  the  more  valuable  lands  than  was  borne  by 
them  under  the  old  apportionment.  These  changes  were  neces- 
sitated in  part  by  the  development  of  certain  sections,  as  in  the 
eastern  part  of  the  state;  and  in  part,  also,  by  the  fact  that  under 
the  former  plan  of  distribution  the  poorer  sections  were  penalized. 
The  board  reported  in  191 5  that  intercounty  wranghng  over  the 
distribution  of  state  taxes  had  ceased,  and  that  no  county  had 
objected  to  its  quota  since  1909.  During  this  period  the  aggre- 
gate state  taxes  were  $14,377,046.  The  counties  are  satisfied  — 
which  indicates  that  the  present  arrangement  is  more  equitable. 
On  the  other  hand,  very  little  has  been  accomplished  in  equaliz- 
ing among  classes  of  property  and  nothing  at  all  in  equalizing 
among  local  districts  or  individual  taxpayers.  The  absence  of  any 
right  of  appeal  to  the  state  board  from  individuals  or  taxing  dis- 
tricts, and  of  any  right  of  interference  on  its  own  motion,  prevent 
the  commission  from  attacking  the  worst  phases  of  the  problem 
of  unequal  assessments.  Granted  that  it  has  attained  practical 
equality  of  assessment  among  counties  for  the  state  apportion- 
ment, there  remains  untouched  the  whole  problem  of  the  burden 
of  local  taxes  within  the  county,  the  distribution  of  which  is 
reviewable  only  by  a  court  unfamiliar  with  the  methods  or  prin- 
ciples of  assessment  and  at  best  but  poorly  equipped  for  an  ade- 
quate review  of  the  assessor's  work.  In  this  respect  Oregon  is  yet 
far  behind  most  states  in  the  development  of  centralized  adminis- 
tration, though  her  backwardness  in  this  particular  is  in  keeping 
with  the  scanty  supervisory  authority  conferred  upon  the  board.^ 

The  Assessment  of  Corporations 

The  law  of  1909,  by  which  the  state  board  of  tax  commissioners 
was  created,^  imposed  upon  that  body  the  duty  of  making 

...  an  annual  assessment  ...  of  the  property  having  a  situs  within  the 
state  ...  of  all  railroad  companies,  sleeping  car  companies,  union  station 
and  depot  companies,  electric  and  street  railway  companies,  express  com- 
panies, telegraph  and  telephone  companies,  refrigerator,  oil  and  tank  line 
companies,  as  may  be  doing  business  as  one  system,  partly  within  this  state 
and  partly  without,  or  doing  business  in  more  than  one  county  of  the  state. 

^  Cf.  below,  p.  472.  *  Laws  of  Oregon,  1909,  ch.  218,  §  15. 


THE  OREGON  TAX  COMMISSION  467 

And  of  such  heat,  light,  power,  water,  gas,  and  electric  companies  as  may 
be  doing  business  as  one  system,  partly  within  and  partly  without  this 
state,  or  so  doing  business  in  more  than  one  county  of  the  state. 

An  amendment  of  19 13  extended  the  commission's  jurisdiction 
to  all  private  car  companies  and  to  all  water,  gas  and  electric 
companies,  whether  doing  an  interstate  or  intercounty  business  or 
not.^  The  same  amendment  transferred  to  the  central  authority 
the  assessment  of  car  and  machine  shops,  grain  elevators,  grain 
warehouses,  bridges  across  the  Willamette  River  and  interstate 
bridges.  These  classes  of  property  had  been  left  in  the  local 
jurisdiction  in  1909  because  of  the  feeling  of  the  special  tax  com- 
mission of  1906  that  it  would  be  unjust  to  the  counties  in  which 
such  definitely  localized  property  was  situated  to  distribute  their 
values  to  the  remote  counties  of  the  state  on  the  mileage  basis.^ 
Corporate  owned  real  estate  not  used  in  the  conduct  of  the  busi- 
ness and  all  docks  and  water  craft  of  navigation  companies 
remain  locally  assessable. 

Centralized  assessment  of  corporate  property  began  in  1910. 
Previous  to  that  date  the  tangible  effects  of  corporations  had  been 
assessed  locally,  with  the  usual  variations  and  "  glaring  incon- 
sistencies "  in  the  results  between  counties  and  as  compared  with 
other  classes  of  property.^  In  1906  the  people  had  initiated  and 
adopted  a  series  of  license  taxes  upon  certain  classes  of  public  serv- 
ice corporations.  Express,  refrigerator  car,  sleeping  car,  and  oil 
companies  were  to  pay  3  per  cent,  and  telegraph  and  telephone 
companies  were  to  pay  2  per  cent  on  gross  earnings,  in  addition  to 
the  taxes  on  tangible  property.*  These  measures  were  given  a 
scanty  approval  by  the  special  commission  of  1906  as  being  a  step 
in  advance  over  the  primitive  methods  formerly  in  vogue,  though 
considerably  behind  modern  legislation  in  the  taxation  of  such 
companies.  The  case  was  properly  held  to  be  as  strong  for  central 
assessment  of  the  other  classes  of  transportation  and  transmission 
companies  as  for  the  railroads.  But  the  special  commission  was 
unwilling  to  recommend  that  the  initiative  proposal  be  abandoned 

1  Laws  of  Oregon,  1913,  ch.  193. 

*  Report  of  the  Board  of  Commissioners,  1906,  p.  51. 

'  State  Board  of  Tax  Commissioners,  Report,  1911,  pp.  10,  11. 

*  Cf .  Laws  of  Oregon,  1907,  chs.  i  and  2,  for  the  rates. 


468  THE  STATE  TAX  COMMISSION 

without  a  fair  trial,  and  for  this  reason  it  omitted  these  classes  of 
corporations  from  its  proposed  scheme  of  centralized  administra- 
tion. Nevertheless,  the  act  of  1909,  creating  the  tax  commission 
and  defining  its  duties,  swept  away  the  gross  earnings  tax  laws 
before  they  had  been  really  given  a  fair  test,  though  considering 
the  experience  of  other  states  the  rates  would  doubtless  have 
proved  too  low. 

The  system  of  taxing  corporations  instituted  in  1909  was  vir- 
tually that  recommended  by  the  commission  of  1906.^  The  ad 
valorem  method  was  definitely  selected  on  the  ground  that  it  was 
better  calculated  to  reach  the  taxable  capacity  than  any  other 
system  that  had  been  suggested.  For  all  companies  the  same  form 
of  report  was  prescribed,  the  main  features  of  which  were  to  be 
the  following: 

1.  Organization  data,  including  names  and  addresses  of  the  principal 
ofi&cers,  and  of  the  Oregon  representatives. 

2.  Capitalization  data,  covering  number  and  value  of  shares  of  stock  and 
of  bonds  outstanding. 

3.  Statement  of  real  and  personal  property  owned  within  and  without 
the  state,  including  moneys  and  credits  owned  within  the  state,  and 
a  complete  list  of  all  buildings  owned  within  the  state. 

4.  Mileage  statistics,  within  and  without  the  state. 

5.  Statement  of  gross  receipts  and  net  earnings,  from  all  sources. 

The  law  further  provided  that  in  arriving  at  the  cash  value  of 
the  properties  the  board  might  conduct  inspections,  consider  the 
reports  made  to  any  other  public  officer,  the  value  of  the  franchise, 
and  any  other  evidences  of  value  which  should  happen  to  be  dis- 
covered. Each  plant  was  to  be  valued  as  a  unit,  from  which  valua- 
tion the  property  outside  the  state  and  that  assessed  by  the 
county  assessor  were  to  be  deducted.  The  total  assessment  was 
to  be  apportioned  among  the  counties  of  the  state  on  the  basis  of 
the  mileage  in  each  county,  and  the  apportioned  values  were  to  be 
equalized  to  the  same  proportion  of  true  value  that  was  used  for 
the  assessment  of  all  other  property  by  the  county  assessors. 
This  provision,  absolutely  necessary  for  justice  in  the  taxation  of 
corporate  and  other  property,  emphasizes  the  importance  of 
accurate  ratios  of  assessed  to  true  value.   Such  a  use  of  the  ratios 

^  Reporl  0}  the  Board  of  Commissioners,  1906,  pp.  121  ff. 


THE  OREGON  TAX  COMMISSION  469 

is  much  more  definite  and  authoritative  in  its  effects  than  to 
regard  them  merely  as  a  guide  to  values  —  a  guide  which  may  be 
followed  or  not  in  the  judgment  of  the  board.  The  latter  is  vir- 
tually bound  to  defend  the  ratios  used  as  correct,  since  these  are 
actually  employed  as  the  basis  of  apportioning  large  amounts  of 
property  to  the  counties.  There  is  a  serious  possibility  of  injus- 
tice either  to  the  corporations  or  to  the  other  property  of  the 
county  if  the  ratio  be  not  thoroughly  representative  of  the 
condition  of  the  assessments  over  the  county. 

Wherever  possible  and  expedient  the  board  has  used  net  earn- 
ings as  the  basis  of  valuation  for  the  corporations  which  it  has 
been  required  to  assess.^  This  method  was  approved  by  the 
special  tax  commission  of  1906,-  and  has  also  been  endorsed  by  the 
Oregon  supreme  court  as  a  proper  method  of  valuing  railroad 
property.^  The  special  tax  commission  recognized,  however,  the 
possibility  and  at  times  the  desirability  of  using  other  methods  of 
valuation ;  and  it  concluded  its  discussion  of  this  point  by  saying 
that  the  question  which  must  arise  in  each  individual  case  as  to 
the  element  which  should  be  given  greatest  weight  in  the  calcula- 
tion of  the  value  of  any  specific  road  "  must  necessarily  be  largely 
committed  to  the  discretion  of  the  assessing  board."  *  Apparently 
the  private  office  valuation  had  no  terrors  for  this  body  after  its 
observation  and  investigation  of  the  work  of  the  local  assessors. 
The  state  board  has  not,  however,  exercised  its  prerogative  of  a 
secret  assessment  to  any  large  extent,  because  of  the  position 
taken  by  the  court  in  the  Jackson  county  case.  In  the  few 
instances  in  which  there  has  been  no  net  income,  for  one  reason  or 
another,  the  board  has  resorted  to  other  means  of  determining  the 
taxable  value  and  in  such  cases  it  has  followed  the  ordinary 
methods  based  on  cost  of  reproduction  of  the  plant  in  existing 
condition.  No  physical  survey  has  been  undertaken  to  ascertain 
original  or  present  cost.  When  the  net  earnings  basis  has  been 
used,  the  average  earnings  for  a  three-year  period  have  been 

^  State  Board  of  Tax  Commissioners,  Report,  191 1,  pp.  12,  13. 

^  Report  of  the  Board  of  Commissioners,  1906,  p.  52. 

'  Oregon  and  California  Railroad  Company  v.  Jackson  County,  38  Oregon,  589. 

*  Report  of  the  Board  of  Commissioners,  1906,  p.  52. 


470  THE  STATE  TAX  COMMISSION 

capitalized  at  7  per  cent.^  The  difl&culties  in  the  way  of  a  correct 
determination  of  net  earnings  have  evidently  given  the  Oregon 
board  no  serious  concern,  as  the  calculations  have  apparently 
been  based  on  the  returns  of  net  earnings  as  made  by  the  com- 
panies themselves.  No  evidence  exists  of  a  systematic  checking 
up  of  these  figures,  an  obviously  impossible  task  in  view  of  the 
complexities  of  corporate  accounting  and  the  board's  inadequate 
clerical  staff. 

The  net  earnings  basis  of  corporate  taxation  is  generally 
recognized  to  be  the  most  difficult  to  administer  successfully  ^  and 
the  commission  has  been  disposed  in  recent  years  to  supplement 
net  earnings  by  other  criteria  of  value.  In  comparison  with  the 
former  regime,  however,  the  total  corporate  assessment  has  been 
significantly  increased.  Owing  to  differences  in  classification  and 
the  addition  of  other  property,  a  comparison  of  the  figures  for 
1 910  and  those  for  previous  years  is  impossible ;  but  the  board  has 
estimated  that  the  property  assessed  by  it  in  19 10  was  valued  at 
about  $50,000,000  by  the  local  assessors  in  1908.  In  1913  the 
total  corporate  assessment  was  $119,017,202,  an  advance  over 
1908  of  138  per  cent.  In  the  same  period  the  assessment  of  other 
property  increased  about  53  per  cent.^  The  law  was  amended  in 
1913  to  give  the  tax  commission  jurisdiction  over  all  gas,  water, 
and  electric  light  and  power  utilities,  even  when  operated  as 
intracounty  units.  This  makes  practically  all  of  the  public 
utilities  subject  to  central  assessment.* 

The  question  may  be  raised,  in  Oregon  as  in  other  states  making 
use  of  the  central  assessment  for  local  purposes,  whether  the  local 
distribution  of  the  taxes  on  certain  classes  of  corporations  is 
justifiable.  Reference  is  made  in  this  connection  particularly  to 
the  refrigerator,  oil  and  tank  line,  express,  telegraph,  and  sleeping 
car  companies,  the  equalized  assessments  of  which  in  1914  ranged 
from  $19,207  for  the  oil  and  tank  line  companies  to  $487,758  for 
the  telegraph  companies.  In  1913  the  board  urged  the  diversion 
of  the  whole  receipts  from  the  taxation  of  these  companies  into  the 

'  Personal  Letter  from  Commissioner  C.  V.  Galloway,  May  6,  1916. 

*  Cf.  Seligman,  Essays  in  Taxation,  pp.  245-249. 

^  State  Board  of  Tax  Conunissioners,  Report,  1915,  p.  9.  *  Ibid.,  p.  8. 


THE  OREGON  TAX  COMMISSION  47 1 

state  treasury,  as  a  matter  of  economy  in  administration  chiefly, 
though  it  was  not  then  averse  to  a  greater  extension  of  the  prin- 
ciple of  separation  of  the  sources  of  state  and  local  revenue.^  On 
the  other  hand,  several  experiments  have  been  tried  in  the 
attempt  to  find  a  satisfactory  basis  of  apportioning  the  railroad 
assessments.  The  law  of  1909  required  a  distribution  on  the  basis 
of  main  track  mileage.  This  resulted  in  allotting  an  excessive 
amount  of  the  large  terminal  values  to  country  districts.  In  19 13 
the  commission  was  required  to  include  all  spur,  yard,  and  side 
tracks  in  making  the  distribution,  a  change  which  favored  the 
terminal  cities  unduly.^  Two  years  later  a  compromise  measure 
provided  that  the  commission  should  value  each  mile  of  spur, 
yard,  and  side  track  at  not  to  exceed  50  per  cent  of  the  amount 
at  which  the  connecting  branch  or  main  lines  were  valued.^  The 
commission  has  always  used  the  maximum  percentage  and  reports 
that  this  plan  appears  to  be  working  more  satisfactorily  than 
either  of  the  others.'*  In  19 15  the  tax  commission  suggested  state 
collection  and  local  distribution  of  the  taxes  on  the  pubUc  service 
corporations  other  than  railroads,^  having  abandoned  for  some 
reason  its  proposal  of  1913  to  divert  these  taxes  into  the  state 
treasury.  The  later  suggestion  misses  the  real  point,  which  is 
that  wire  or  line  mileage  is  not  a  satisfactory  basis  of  distribu- 
tion ;  and  further,  that  the  state- wide  diffusion  of  such  small  sums 
profits  tax  districts  very  little  whereas  the  retention  of  the  whole 
in  the  state  treasury  might  effect  a  slight  reduction  in  the  state 
tax  rate  and  thus  work  a  positive  benefit  to  every  part  of  the 
state. 

Supervision  of  the  Local  Officials 

According  to  the  terms  of  the  act  creating  the  board  of  tax  com- 
missioners, that  body  was  to  exercise  general  supervision  over  the 
assessment  and  collection  of  taxes  throughout  the  state.  In  this 
case,  however,  the  phrase  "  general  supervision  "  was  more  form 

*  State  Board  of  Tax  Commissioners,  Report,  1911,  pp.  30,  31. 
'  Laws  of  Oregon,  1913,  ch.  193. 

^  Ibid.,  1915,  ch.  289. 

*  Personal  Letter  from  Commissioner  C.  V.  Galloway,  May  6,  1916. 
'  Oregon  Tax  Commission,  Report,  1915,  pp.  12,  13. 


472  THE  STATE  TAX  COMMISSION 

than  substance,  for  the  board  was  left  with  no  effective  means  of 
securing  the  ends  sought  through  state  control  of  local  assess- 
ments. The  board  was  required  to  visit  the  various  counties 
regularly,  to  prescribe  all  blanks  and  forms  used  in  the  assess- 
ment and  collection  of  taxes,  to  instruct  all  officials  in  the  methods 
best  calculated  to  secure  uniformity  in  assessments  and  general 
compliance  with  the  laws,  and  to  enforce  the  penalties  provided 
for  the  violation  of  any  law. 

The  omissions  in  this  list  of  means  of  securing  improved  local 
assessments  were  serious.  Instructions  may  be  given  and  advice 
offered,  but  no  authority  exists  for  enforcing  the  suggestions 
made.  The  commission  may  not  order  the  revaluation  of  a  tax- 
ing district,  either  on  appeal  or  on  its  own  motion;  it  may  not 
remove  a  tax  official  except  by  the  slow  and  uncertain  procedure 
of  the  courts ;  it  may  not  even  exert  any  material  pressure  upon 
him  in  his  work  of  assessment  or  equalization  within  the  county. 
The  presence  of  a  central  advisory  body  has  done  much  and  will 
continue  to  do  much  to  coordinate  the  administration  of  the  tax 
laws,  and  to  attain  greater  relative  justice  in  assessment  matters. 
But  without  the  definite  power  to  control  the  direction  of  the 
reforms  the  improvement  of  the  system  of  taxation  will  be,  as  it 
has  been,  very  seriously  hampered. 

The  situation  in  Oregon  has  been  further  complicated  recently 
by  the  introduction  of  numerous  and  conflicting  economic  and 
political  proposals,  all  supposedly  looking  in  the  direction  of  social 
reform.  Sentiment  in  the  state  has  never  been  strong  for  an 
effective,  centralized  administration  of  the  tax  laws,  and  even  the 
special  commission  of  1906  feared  the  possible  danger  of  an  auto- 
cratic central  tax  board  with  mandatory  powers  over  the  local 
officials. "^  It  was  to  insure  perfect  accountability  of  the  members 
to  the  people  that  the  balance  of  power  was  retained  in  the  elec- 
tive officials  of  the  state.  When  this  commission  reported,  the 
distrust  in  officials  and  legislature  had  already  been  manifested 
by  the  adoption  and  use  of  the  initiative  and  referendum  for 
general  legislative  purposes.  It  was  even  more  strongly  evi- 
denced by  the  constitutional  amendment  of  1910  which  forbade 
*  Report  of  the  Board  of  Commissioners,  1906,  pp.  44  ff. 


THE  OREGON  TAX  COMMISSION  473 

any  bill  on  taxation  to  become  a  law  until  voted  upon  by  the 
people.^ 

This  clumsy  check  upon  the  people's  representatives  was  pro- 
posed as  one  of  the  bulwarks  of  the  program  of  local  option,  also 
provided  for  in  this  constitutional  amendment.  Both  of  these 
provisions  were  stricken  out  in  191 2,  though  the  antagonism  to 
undue  haste  in  tax  legislation  forced  the  retention  of  a  prohibition 
against  declaring  an  emergency  to  exist  in  the  passage  of  any  tax 
law.  The  board  strenuously  opposed  the  amendment  of  1910, 
but  it  became  a  part  of  the  constitution  with  the  help  of  about  37 
per  cent  of  the  total  nmnber  of  votes  cast  at  the  election.^  In 
explanation  of  this  vote  the  board  stated  that  the  measure 
appeared  on  the  ballot  under  an  attractive  title,  and  the  later 
discussion  disclosed  the  fact  that  its  real  purpose  was  not  fully 
understood.^  Both  of  these  measures  ■ —  the  restriction  upon  the 
legislative  enactment  of  tax  laws  and  the  county  option  in  taxa- 
tion—  were  repealed  in  191 2,  but  an  amendment  to  the  statute 
was  adopted  exempting  household  goods  from  taxation.'*  An- 
other campaign  was  waged  in  19 14  in  advocacy  of  two  amend- 
ments providing  for  the  abolition  of  the  general  property  tax  and 
for  classification  of  property.  Both  proposals  were  defeated  and 
the  only  net  achievement  of  all  these  years  of  struggle  has  been 
the  exemption  of  household  goods  and  the  prohibition  of  a  poll 
tax.^  This  experience  should  serve  as  an  example  of  the  folly  of 
regulating  administrative  details  by  constitutional  provision. 

Whatever  else  may  follow  from  this  violent  partizan  agitation, 
there  can  be  little  doubt  that  its  effect  up  to  191 2  had  been  to 
weaken  the  position  of  the  tax  commission.  The  latter's  super- 
visory authority  had  never  been  regarded  as  more  than  advisory. 
There  had  never  been  strong  sentiment  for  effective  central 
administration  and  the  spirit  of  local  independence  which  had 
been  fostered  by  the  county  unit  amendment  had  developed  a 
species  of  insubordination  among  local  tax  officials.   One  county 

*  State  Board  of  Tax  Commissioners,  Report,  191 1,  p.  22. 
«  IbU.  '  Ibid. 

*  Lord's  Oregon  Laws,  §  3554. 

*  Oregon  Tax  Commission,  Report,  1913,  p.  7. 


474  THE  STATE  TAX  COMMISSION 

assessor,  in  an  interview  in  191 1,  went  so  far  as  to  say  in  a  rather 
truculent  manner,  that  he  took  neither  advice  nor  orders  from  the 
state  board.^ 

The  contest  which  occurred  at  the  polls  in  191 2  was  a  decisive 
trial  of  strength  between  the  tax  commission  and  the  ultraradical 
element  in  the  state ;  and  while  in  some  respects  it  was  a  drawn 
battle  yet  the  board  appears  to  have  come  out  of  the  engagement 
in  better  condition  than  its  adversaries.  Its  own  progressive  pro- 
posals were  defeated,  but  the  two  innovations  adopted  in  1910, 
so  obnoxious  to  the  board,  were  stricken  from  the  constitution. 
This  decisive  reversal  of  the  vote  of  1910,  together  with  the  fact 
that  three  counties  defeated  local  option  in  elections  held  under 
the  amendment  while  it  was  in  force,  supports  the  board's 
explanation  of  a  confused,  and  possibly  a  misrepresented  issue. 

The  board  has  performed  well  those  duties  of  a  supervisory 
character  which  have  been  required  of  it  by  the  law.  The  annual 
visits  to  each  county  have  been  made,  though  in  Oregon  as  in 
other  states  these  visits  have  tended  to  become  a  perfunctory 
visitation  of  the  sick.  A  considerable  correspondence  has  been 
maintained  with  officials  and  others,  and  instructions  have  been 
issued  regularly  to  the  assessors.  In  the  pamphlet  containing  the 
laws  there  was  printed  also  a  helpful  digest  of  the  leading  court 
decisions  upon  contested  points  in  the  law.  At  least  one  meeting 
of  all  of  the  assessors  has  been  held,  though  there  was  no  special 
program  carried  out,  and  no  proceedings  of  the  meeting  have  been 
published.^  The  board  recommends  that  an  annual  meeting  be 
provided  for,  the  expenses  of  which  shall  be  defrayed  from  state 
funds.  Some  improvements  have  also  been  made  in  the  forms  of 
the  records  kept  by  the  local  officials. 

While  these  changes  are  beneficial  and  important  accessories 
to  the  best  operation  of  the  tax  system,  they  are  not  sufficient  in 
themselves  to  prevent  inequitable  assessments  and  general  laxness 
in  administration.  The  machinery  of  interference  within  the 
county  is  so  cumbersome  that  its  use  has  never  been  invoked  by 
the  commission  to  remedy  inequalities  or  to  remove  officials.   In 

'  Interview  with  the  Assessor  of  Douglas  county,  July,  191 1. 
^  State  Board  of  Tax  Commissioners,  Report,  191 1,  p.  9. 


THE  OREGON  TAX  COMMISSION 


475 


the  matter  of  appeals  the  law  specifies  that  each  county  shall  be 
visited  at  least  once  in  each  year  in  order  that,  among  other 
things,  "  complaints  concerning  the  law  may  be  heard."  But  the 
absence  of  any  power  to  move  in  the  redress  of  grievances  renders 
this  provision  of  little  avail,  for  as  has  been  stated  above,  the 
individual  must  make  his  appeal  for  a  correction  of  the  tax  roll 
to  the  county  court. 

With  this  survey  of  the  limitations  under  which  the  Oregon 
commission  has  had  to  work,  attention  is  turned  to  the  results,  so 
far  as  these  may  be  found  in  the  detailed  statistics  of  the  assess- 
ment roll.  The  situation  as  regards  real  estate  and  corporate 
property  has  already  been  discussed.  There  remains  for  con- 
sideration the  personal  property  figures.  These  are  presented  in 
the  table  below:  ^ 


Assessment  of  Personal  Property,  1908-14  ( 

millions) 

1908 

1909 

1910 

1911 

I9I2 

1913 

1914 

/.  Tangible  Properly 

I.  Farm  animals    

$19.1 
25-8 

11-3 
8.8 

3,-3 

$23.4 
24.9 

14.4 

lO-S 
4.0 

$26.6 
27-3 

13-6 

12.8 

5-3 

$24.4 
28.S 

14-5 

15-2 

6.0 

$23.3 
28.8 

I3Q 
13.0 

6.1 

$29.0 
30-5 

15-0 

2.0 

6.8 

$30-3 
28.3 

9-7 
2.1 

2.  Mdse,  stock  in  trade .... 

3.  Steamboats,  vessels,  ma- 

chinery   

4.  Household,   personal,   of- 

fice furniture 

5.  Implements,     tools,     ve- 
hicles   

7-1 

Total  tangible  property 

II.  Intangible  Property 

1.  Moneys 

2.  Shares  of  stock 

66.3 

16.3 
8.8 
5-3 

77.2 

12.8 

12.7 

7-4 

85.6 

14.1 

15-0 

6.4 

86.6 

14. 1 

16.6 

5-9 

85.4 

12.8 

16.3 

3-7 

83-3 

3-2 
iS-3 
16.7 

77-5 

3-0 
14.9 

3.  Notes  and  accounts 

^S-S 

Total  intangibles 

30-4 

32.9 

35-5 

36.6 

32.8 

35-2 

33-2 

Grand  total 

96.7 

109.1 

121. 1 

123.2 

118.2 

118.S 

1 10.7 

These  figures  reveal  the  similarity  of  Oregon's  experience  with 
the  personal  property  tax  to  that  of  every  other  state  studied. 
1  Compiled  from  the  Reports  of  the  Tax  Commission. 


476  THE  STATE  TAX  COMMISSION 

While  some  increase  in  the  total  amount  of  property  assessed  has 
been  effected  under  centralized  administration,  by  far  the  greater 
proportion  of  the  increase  has  occurred  in  the  classes  of  tangible 
property.  An  actual  retrogression  in  personal  property  assess- 
ments occurred  in  191 2  and  again  in  1914;  and  as  the  intangibles 
had  increased  more  slowly  when  the  total  was  rising,  so  they 
decreased  more  rapidly  when  the  total  declined.  The  sudden 
shift  between  moneys  and  credits  in  1913  and  19 14  must  have 
been  due  either  to  a  clerical  error  in  the  published  reports  or  to  a 
reclassification  of  the  returns.  To  what  extent  the  agitation 
which  has  raged  in  Oregon  for  some  years  for  the  complete  exemp- 
tion of  personal  property,  and  the  shifting  of  the  whole  burden  of 
taxation  to  the  land,  has  been  responsible  for  the  failure  to  secure 
better  results  in  assessing  personalty,  it  is  impossible  to  say.  The 
majority  of  the  people  have  not,  thus  far,  been  willing  to  under- 
take such  a  radical  transformation  of  the  tax  system.  Neither 
are  they  wilHng  to  abide  by  the  consequences  of  their  decisions  at 
the  polls  and  submit  to  the  taxation  of  personal  property  under 
the  general  property  tax.  Advantage  has  undoubtedly  been 
taken,  by  those  desirous  of  evading  their  taxes,  of  the  confusion 
incident  to  the  injection  of  debatable  theories  of  social  reform,  to 
accomplish  their  end. 

This  confusion  of  the  issue  cannot  wholly  sufiice  as  an  explana- 
tion of  the  situation.  The  experience  of  other  states  seems  con- 
clusive on  the  point  that  centralized  administration  of  the  general 
property  tax  has  been  unable  to  effect  any  material  change  in  the 
conditions  of  personal  property  assessment,  even  when  consider- 
able attention  has  been  given  by  the  tax  commission  to  this  end. 
The  Oregon  commission  has  been  keenly  aware  of  the  defects  of 
the  tax  system  and  has  labored  earnestly  since  the  beginning  for 
reform.  The  net  result  of  its  efforts  thus  far  (1916)  has  been  the 
exemption  of  household  goods  provided  in  191 2.  ^ 

On  the  whole,  it  must  be  concluded  that  because  of  the  dis- 
turbed state  of  public  opinion  and  the  weaknesses  of  the  adminis- 
trative system,  the  tax  commission  has  been  unable  to  exercise 

'  The  unexpected  adoption  in  June,  191 7,  of  a  constitutional  amendment  author- 
izing classification  opened  the  way  for  a  thorough  reform  of  the  tax  system. 


THE  OREGON  TAX  COMMISSION  477 

effective  supervision  over  the  local  officials.  The  state  equaliza- 
tion has  been  more  carefully  made,  and  the  public  service  cor- 
porations are  now  being  taxed  on  approximately  the  same  basis  as 
other  property.  But  in  the  exercise  of  supervisory  powers  very 
little  of  a  positive  character  has  been  accomplished. 

The  Recommendation  of  Improvements 

In  the  first  biennial  report  the  Oregon  board  expresses  the  belief 
that  improvements  should  be  worked  out  slowly  through  an 
evolutionary  process  rather  than  by  sweeping  reforms  of  a 
revolutionary  nature.  It  has  not  been  permitted  to  apply  this 
theory  unmolested,  for  the  struggle  of  various  factions  interested 
in  tax  reform  has  forced  the  board  into  more  than  one  heated 
conflict,  and  constitutional  amendments  have  been  passed  and 
repealed  with  amazing  celerity.  Improvements  have  been  intro- 
duced into  the  tax  laws,  of  course,  and  the  commission  now  has  a 
respectful  hearing  in  its  recommendations.  The  marked  dif- 
ferences of  opinion  as  to  the  proper  course  which  further  improve- 
ments should  take  lessens  the  influence  and  authority  of  the 
commission  as  the  expert  advisers  of  the  legislature. 


478 


THE  STATE  TAX  COMMISSION 


APPENDIX  TO  CHAPTER  XIV 

Per  Cent  or  State  Taxes  Paid  by  the  Several  Counties  of  Oregon, 

WITH  THE  Average  Value  of  Farm  Lands  per  Acre  According 

TO  THE  13TH  Census,  1910 1 


County 


Per  cent  of  state 

taxes  by  legislative 

apportionment 


Per  cent  of  state 
taxes  according  to 
equalization  by 
the  tax  commis- 
sion, 1912 


Average  value 

farm  lands,  per 

acre,  13th  census, 

1910 


Baker 

Benton 

Clackamas.  . 

Clatsop 

Columbia .  .  . 

Coos 

Crook 

Curry 

Douglas .... 

Gilliam 

Grant 

Harney 

Hood  River ' 

Jackson 

Josephine .  .  . 
Klamath .  . .  . 

Lake 

Lane 

Lincoln 

Linn 

Malheur .  .  .  , 
Marion .... 
Morrow.  ... 
Multnomah . 

Polk 

Sherman .  .  . , 
Tillamook   . 
Umatilla ... 

Union 

Wallowa .  .  . 

Wasco 

Washington . 
Wheeler.  .  .  . 
Yamhill.  . .  . 


.0234 
.0202 

•033s 
.0212 
.0106 
.0203 
.0130 
.0040 

•034s 
.0087 
.0092 
.0160 

.0314 
.0090 
-01 1 5 
.0107 
.0462 
•0055 
.0526 
.0094 
.0613 
.0095 
•3123 
.0307 
.0087 
.0087 
.0490 
.0223 
.0073 
.0234 
.0301 
.0067 
.0391 


.025197 
•013233 
.034468 
.023589 
.016814 
.022411 
.012925 
.003948 
•035776 
.010064 
.008322 
.008477 
.011564 

•034379 
.012466 
.015492 
.008162 
.040694 
•007997 
•033330 
.011029 
.046580 
.011165 
•356990 
.019290 
.009450 
.016071 
.045031 
•023361 
.011929 
•017358 
.024874 
•004595 
.022969 


$36.68 
39^48 
78.29 
35^09 
35-90 
33-41 
17-54 
16.23 
26.17 
18.86 
10.00 

12.35 
340.03 
90.60 
41-58 
20.18 
14.67 
39-34 
20.35 
45-34 

35-22 

73^40 
12.36 
228.61 
54.08 
25-14 
65-87 
31.26 

33^49 
20.20 
22.19 
97.16 
9.12 
69^39 


1  In  general  the  percentage  of  state  taxes  borne  by  the  counties  in  191 2  has  been  increased  where 
land  values  are  high,  and  decreased  where  these  values  are  low.  This  comparison  does  not  prove  the 
point  conclusively,  but  it  is  evidence  that  the  tax  commission  is  equalizing  more  equitably  than  did 
the  legislature  in  1901. 

'  Hood  River  county  was  organized  from  Wasco  county  in  1908. 


CHAPTER  XV 

THE  TAX  COMMISSION  OF  OHIO 

The  history  of  the  state  board  of  equalization  and  of  the  various 
boards  for  the  administration  of  certain  taxes  on  corporations  in 
Ohio  has  been  outlined  above.^  It  was  there  suggested  that  the 
state  tax  commission,  which  was  created  in  1910,  was  the  out- 
come of  another  series  of  administrative  experiments.  Before 
taking  up  the  work  of  the  conmiission  itself,  these  experiments 
will  be  described  briefly  since  they  explain  not  only  the  appear- 
ance of  the  tax  commission  but  also  in  part  the  long  delay  in 
reaching  this  stage  of  administrative  control. 

The  special  tax  commission  of  1893  had  recommended  a 
thorough  reorganization  of  the  tax  administrative  structure.^ 
The  plan  formulated  by  this  body  displayed  insight  into  the 
fundamental  evils  of  the  old  system  and  vision  of  the  future 
course  of  reform  in  American  taxation.  The  commission's  bill 
was  more  radical,  and  at  the  same  time  more  in  Hne  with  recent 
developments,  than  any  proposals  for  administrative  changes 
which  had  been  advanced  anywhere  in  the  United  States  to  that 
time.  It  provided  for  a  tax  commission  of  three  members  to  be 
chosen  by  the  governor  for  a  term  of  six  years.  The  proposed 
commission  was  to  assume  the  duties  of  the  state  board  of  equali- 
zation and  of  the  various  boards  for  the  assessment  of  corporate 
property.  Centralized  control  over  the  local  assessment  process 
was  to  be  secured  by  giving  the  tax  commission  power  to  appoint 
in  each  county  a  board  of  assessment  and  equalization,  consisting 
of  three  members  selected  for  a  six-year  term.  These  county 
boards  were  to  appoint  ward  and  township  assessors  and  were  to 
reheve  the  county  auditors  of  their  duties  in  connection  with  the 
assessment.    So  comprehensive  a  scheme  for  reconstructing  the 

'  Cf.  above,  pp.  48-56. 

*  Report  of  the  Tax  Commission  of  Ohio,  1893,  pp.  70  ff. 


480  THE  STATE  TAX  COMMISSION 

administrative  organization  of  the  tax  system  was  far  in  advance 
of  its  time;  and,  instead  of  adopting  it,  the  people  of  Ohio  chose 
to  spend  ahnost  a  generation  in  experimenting  with  another 
feeble  state  board  and  a  batch  of  incongruous  and  unrelated  laws 
imposing  additional  taxes  upon  corporate  property. 

The  board  referred  to  was  the  state  board  of  assessors  and 
appraisers,  estabHshed  in  1893  ^  ^^^  the  valuation  of  the  property 
of  express,  telegraph,  and  telephone  companies  and  the  appor- 
tionment of  these  valuations  among  the  tax  districts.    It  was 
composed   of   the   auditor,    treasurer,   and   attorney-general   of 
state.    In  the  following  legislative  session  an  excise  tax  of  2  per 
cent  was  laid  upon  the  gross  receipts  of  express  companies  and  a 
similar  tax  of  i  per  cent  upon  that  proportion  of  the  capital  stock 
of  sleeping  car  companies  which  represented  property  used  in  the 
state.2  The  new  board  was  placed  in  charge  of  these  taxes.   Two 
years  later  the  excise  principle  was  extended  to  a  number  of  other 
classes  of  pubKc  service  corporations  by  levying  a  tax  of  one-half 
per  cent  upon  their  gross  receipts;  ^  and  in  1902  its  field  of  appli- 
cation was  still  further  enlarged,  while  the  rate  was  advanced  to 
I  per  cent.^   In  this  year  also  private  business  corporations  were 
required  to  pay  a  franchise  tax  of  one-tenth  per  cent  on  the  pro- 
portion of  capital  stock  which  represented  property  used  in  the 
state. ^     The  administration  of  all  of  these  taxes,  except  the  last 
named,  was  vested  in  the  board  of  assessors  and  appraisers  which 
thus  became  a  nucleus  of  central  administration,  though  of  a 
very  limited  sort.  Its  duties  were  largely  clerical.  They  consisted 
chiefly  in  receiving  the  reports  of  the  corporations  taxed  under  the 
various  laws  and  certifying  to  the  state  treasurer  the  amounts 
upon  which  the  excise  taxes  were  to  be  paid.    Certain  powers  of 
compelling  the  appearance  of  witnesses  and  the  production  of 
evidence  were  given  but  no  supervisory  authority  was  exercised 
over  the  accounts  or  returns  of  the  companies  which  remained 
virtually  their  own  assessors.^ 

1  go  Ohio  Laws,  330.  ^  95  Ohio  Laws,  136. 

"  91  Ohio  Laws,  237.  ^  95  Ohio  Laws,  124. 

^  92  Ohio  Laws,  79. 

'  Cf.  the  criticisms  of  the  mass  of  corporation  taxes  that  had  been  developed, 
in  Report  of  the  Tax  Commission  of  Ohio,  1908,  pp.  30-33. 


THE  TAX  COMMISSION  OF  OHIO  48 1 

The  motive  for  the  development  of  this  mass  of  confused,  unre- 
lated and  feebly  administered  taxes  lay  in  the  people's  desire  to  be 
rid  of  the  injustice  of  the  old  tax  system,  coupled  with  their  unwill- 
ingness to  consent  either  to  a  more  effective  administration  or  the 
complete  elimination  of  the  general  property  tax.^  Separation  of 
the  sources  of  revenue  for  state  and  local  purposes  became  the 
popular  idea  of  tax  reform,  and  in  applying  it  the  direct  tax  for 
state  purposes  was  abolished. ^  These  changes,  however  expe- 
dient from  the  standpoint  of  the  state  finances,  encountered  the 
objection  that  has  been  raised  against  complete  separation  of  the 
sources  of  revenue,  namely  the  absence  of  central  supervision 
over  the  distribution  of  the  local  tax  burden.^  The  decennial 
equalization  of  1900-01  had  accomphshed  practically  nothing 
toward  the  relief  of  the  local  inequalities,  and  by  1906  pubUc 
sentiment  had  become  strongly  aroused  in  favor  of  further 
changes.*  A  special  commission  of  investigation  was  created,  and 
the  second  of  a  group  of  five  recommendations  offered  by  this 
commission  in  its  report,  published  in  1908,  was  the  following:^ 

The  establishment  of  a  state  tax  board  of  three  members  to  be  appointed 
by  the  governor,  to  administer  all  laws  for  the  collection  of  state  revenues 
and  to  make  such  recommendations  upon  the  general  subject  of  taxation  as 
investigation  and  experience  may  from  time  to  time  suggest. 

The  law  creating  the  tax  commission  was  enacted  in  1910.®  In 
addition  to  the  usual  provisions  for  such  a  body,  it  contained  an 

'  In  all  six  votes  have  been  taken  on  the  question  of  amending  the  constitution 
to  eliminate  the  uniform  rule. 

'  Cf.  Bogart,  op.  cil.,  pp.  246-248.  No  direct  levy  was  made  for  state  purposes 
in  1902  and  the  total  state  levy  for  school  and  sinking  fund  purposes  was  1.13  mills. 
Governors  Nash  and  Pattison  advocated  the  complete  ehmination  of  even  these 
levies.  The  movement  for  separation  had  produced  several  other  state  taxes  in- 
cluding a  Uquor  tax,  an  insurance  tax,  and  direct  and  collateral  inheritance  taxes. 
The  direct  inheritance  tax  was  passed  in  1904  (97  Ohio  Laws,  398)  and  repealed  in 
1906  (98  Ohio  Laws,  229).  The  receipts  from  all  of  these  sources  for  state  purposes 
increased  from  $1,720,000  in  1896  to  $7,081,000  in  1907.  Cf.  Report  of  the  Tax 
Commission  of  Ohio,  1908,  p.  63. 

'  Cf.  Bullock,  "  The  Separation  of  the  Sources  of  State  and  Local  Revenues," 
Quart.  Jour.  Econ.,  xxiv,  p.  437. 

*  Cf.  Report  of  the  Tax  Commission  of  Ohio,  1908,  pp.  16-34,  for  an  account  of 
conditions;  ibid.,  p.  6,  for  a  hst  of  the  organizations  appearing  before  it. 

*  Ibid.,  p.  39.  *  loi  Ohio  Laws,  399. 


482  THE  STATE  TAX  COMMISSION 

attempt  to  codify  and  simplify  the  mass  of  complex  and  diverse 
legislation  which  had  accumulated  for  the  taxation  of  corpo- 
rations. The  codification  of  the  corporation  tax  law  and  the 
centraUzation  of  its  administration  into  the  hands  of  the  tax  com- 
mission resulted  in  temporarily  overemphasizing  that  feature  of 
the  commission's  duties,  but  the  balance  has  been  subsequently 
restored  by  the  provision  of  additional  authority  over  the  proc- 
ess of  local  assessment.  The  principal  duties  of  the  Ohio  tax 
commission  at  the  present  time  are  the  state  equalization,  the 
administration  of  various  taxes  on  corporations,  and  a  certain 
supervision  of  the  local  ofl&cials.  To  these  duties  and  the  results 
which  have  been  obtained  through  their  exercise  attention  will 
now  be  turned. 

Equalization 

The  commission's  duties  in  connection  with  the  state  equaliza- 
tion have  varied  somewhat  at  different  times,  owing  to  the  rapid 
succession  of  changes  that  have  been  made  in  the  administration 
of  the  Ohio  tax  system.  The  reappraisal  of  land  was  under  way  in 
1 910  and  almost  the  first  task  of  the  commission  was  to  equalize 
that  appraisal,  the  results  of  which  were  to  stand  for  four  years. 
Before  this  period  had  expired  the  Warnes  law  of  19 13  introduced 
the  experiment  of  centrally  appointed  county  assessors,  to  be 
known  as  deputy  tax  commissioners.^  For  reasons  not  generally 
known  to  outsiders  the  tax  commission  did  not  order  the  deputy 
tax  commissioners  to  make  a  general  revaluation  of  real  estate  in 
either  of  the  two  years  during  which  this  law  was  in  force.  There 
was,  therefore,  no  opportunity  for  a  general  equahzation  of  real 
property.  In  191 5  the  principle  of  central  appointment  of  the 
assessor  was  abandoned  and  locally  chosen  tax  officials  were  once 
more  provided.^  This  tax  act  was  far  from  clear  but  the  attorney- 
general  ruled  that  it  did  not  require  an  annual  reassessment  of 
real  estate,  though  the  tax  commission  had  discretionary  author- 
ity to  order  the  revaluation  of  all  or  any  part  of  the  real  estate. 
Again  there  was  failure  to  act  and  no  general  reassessment  of  real 
estate  had  been  undertaken  under  the  Parrett-Whittemore  law 

^  103  Ohio  Laws,  786.  ^  106  Ohio  Laws,  246. 


THE  TAX  COMMISSION  OF  OHIO  483 

when  it  was  declared  unconstitutional  in  January,  191 7.'  The 
emergency  measure  of  191 7  apparently  requires  the  commission 
to  make  such  annual  equaUzation  of  any  and  all  classes  of  real 
and  personal  property  in  any  county  or  subdivision  thereof  as  may 
be  necessary  to  secure  assessment  of  all  property  at  its  true  value 
in  money.-  This  law  was  passed  too  late  to  permit  of  a  general 
revaluation,  though  such  has  been  undertaken  in  some  counties 
at  the  direction  of  the  county  auditors. 

In  consequence,  the  only  experience  of  the  Ohio  tax  commission 
with  a  general  state  equalization  of  real  property  has  been  that  of 
1 9 10,  and  this  had  to  be  undertaken  almost  as  soon  as  the  com- 
mission was  organized.  Moreover,  there  had  been  no  general 
reappraisal  and  equahzation  of  real  estate  since  1900  and  there 
was  abundant  evidence  to  show  that  the  existing  assessments  were 
very  unequal. 

The  last  three  appraisals,  1881-1901,  had  added  only  $21,190,- 
533  to  the  land  valuation  of  the  state,  while  the  total  valuation 
added  to  the  assessment  of  buildings  and  improvements  in  the 
same  time  had  been  $610,135,000.^  Even  the  brief  researches 
made  by  the  special  tax  commission  of  1908  had  resulted  in  the 
most  conclusive  evidence  of  the  deplorable  state  of  affairs.  For 
example,  in  Adams  county  one  hundred  and  ninety-one  parcels  of 
real  estate  had  been  transferred  for  a  total  of  $92,409,  while  they 
had  been  assessed  for  $10,460,  or  an  average  ratio  of  assessed  to 
true  value  of  11.3  per  cent;  but  one  hundred  and  twenty-one 
parcels  in  the  same  county  had  sold  at  a  total  of  $42,263,  and  had 
been  assessed  at  $51,020,  or  120.7  P^r  cent  of  true  value.  Brown 
coimty  revealed  percentages  of  assessed  to  true  value  ranging  from 
12.3  per  cent  to  in. 6  per  cent,  Monroe  county,  10.8  per  cent  to 
107.2  per  cent,  and  Montgomery  county,  12.2  per  cent  to  106.9 
per  cent.  The  data  compiled  showed  that  Brown  county  had 
been  assessed  at  an  average  of  50.3  per  cent  of  full  value,  while 
Adams  county  had  been  assessed  at  43.4  per  cent,  Monroe  county 
at  36.7  per  cent,  and  Montgomery  county  at  37.1  per  cent.* 

^  Godfrey  v.  O'Brien,  95  Ohio,  i.  *  107  Ohio  Laws,  29. 

'  Ohio  Tax  Commission,  Report,  191 1,  p.  25. 

*  Report  of  the  Tax  Commission  of  Ohio,  1908,  Table  G. 


484  THE  STATE  TAX  COMMISSION 

In  view  of  these  well  known  conditions  of  local  assessment  and 
especially  the  evidence  which  had  been  so  recently  collected  by 
the  special  tax  commission  of  1908  touching  the  unequal  basis  of 
valuation,  it  seems  that  in  19 10  the  new  tax  commission  would 
have  sought  the  most  efficient  means  available  for  checking  up 
the  work  of  the  local  officials  and  boards  of  review.  One  of  the 
most  satisfactory  guides  to  the  relation  of  assessed  to  true  value 
that  has  been  worked  out  in  the  United  States  is  the  "  sales 
method  "  as  it  has  been  developed  and  applied  in  Wisconsin.^  An 
expert  from  the  Wisconsin  commission  demonstrated  the  system 
in  Ohio  and  would  have  assisted  in  instalKng  it.  The  first  chair- 
man of  the  commission  —  the  minority  member  —  favored  the 
plan,  but  after  a  conference  with  the  governor  the  sales  method 
was  rejected  by  a  majority  vote  on  party  lines,  on  the  ground  of 
being  "  impracticable  and  altogether  too  expensive."  ^  With 
regard  to  the  expense  the  statistician  of  the  Wisconsin  commis- 
sion estimated  that  a  sales  bureau  could  be  estabhshed  in  Ohio 
that  would  present  reliable  real  estate  values  for  every  county  and 
district  in  the  state  at  an  expense  not  to  exceed  $6000  per  year, 
"  if  kept  entirely  free  from  political  conditions  and  political 
patronage."  ^  Such  an  estimate,  based  on  an  expert  knowledge  of 
conditions  in  Wisconsin,  appears  to  meet  effectively  the  objection 
of  prohibitive  expense ;  the  requirement  of  freedom  from  political 
interference  would  have  been  more  difficult  to  secure. 

The  Ohio  commission's  discussion  of  the  sales  method  in  its 
report  for  19 10  was  evidently  intended  as  a  searching  criticism  of 
the  underlying  theory,  written  in  defense  of  the  rejection  of  the 
system.  Instead  of  demolishing  the  theory  these  comments 
reveal  quite  clearly  the  writer's  unfamiliarity  with  the  basic 
assumptions  involved.   For  example  the  commission  said:  * 

*  Cf.  above,  ch.  8. 

'  Ohio  Tax  Commission,  Report,  1910,  p.  67.  Cf.  also  W.  B.  Poland,  "  Progress 
made  in  Administering  the  Ohio  Tax  Commission  Law,"  Proceedings  of  the  Seven- 
teenth Annual  Meeting  of  the  Ohio  Chamber  of  Commerce,  1910,  p.  277. 

*  Personal  Letter  from  A.  E.  James,  June  5,  191 2.  In  September,  1916,  Mr. 
James  confirmed  this  estimate  notwithstanding  the  general  rise  in  prices  since  191 2. 

*  Ohio  Tax  Commission,  Report,  1910,  p.  68. 


THE  TAX  COMMISSION  OF  OHIO  485 

The  theory  assumes  that  the  local  assessor  uniformly  assessed  all 
property  in  his  district  at  the  same  percentage  of  selling  value  as  shown 
in  the  transfers  made  within  the  period  in  the  district.  An  examination  of 
the  transfers  furnished  by  the  county  auditors  discloses  this  not  to  be  true. 

Of  course  no  intelligent  advocate  of  the  sales  method  has  ever 
held  such  assumptions.  The  real  assumptions  are,  first,  that  all 
grades  of  the  assessor's  work  are  fairly  evenly  represented  in  the 
transfers;  and  second,  that  if  all  grades  are  not  represented,  that 
the  work  included  will  not  be  widely  different  from  his  work  as  a 
whole.  It  is  admitted  that  the  ratios  would  be  vitiated  if  the 
assessor  had  used  varying  ratios  for  different  grades  of  property 
and  if  one  of  these  were  excessively  represented  in  the  sales.  Tests 
which  have  been  made  in  Wisconsin  demonstrate  the  soundness 
of  the  above  assumptions.  The  members  of  the  Ohio  tax  com- 
mission in  1910  either  failed  to  grasp  the  theory  of  the  sales 
method,  or  chose  deliberately  to  reject  the  use  of  scientific 
methods  of  procedure. 

Notwithstanding  the  rejection  of  the  offer  of  the  Wisconsin 
commission  to  assist  in  the  installation  of  a  scientific  sales  system 
and  the  denunciation  of  the  whole  assimiption  upon  which  it  sup- 
posed that  the  sales  ratio  rested,  the  Ohio  commission  proceeded 
to  perform  the  equalization  of  1910  largely  upon  the  basis  of  sales 
data  collected  by  the  county  auditors  *  and  subjected  to  none  of 
the  searching  tests  used  in  Wisconsin.  The  only  safeguard  was 
the  omission  of  "  dollar  sales  "  and  forced  sales,  but  the  results 
were  completely  vitiated  and  the  whole  question  begged  by  the 
commission's  suggestion  to  the  county  auditors  to  report  a  select 
list  of  "  representative  sales."  Naturally,  as  the  Wisconsin  statis- 
tician pointed  out  in  his  letter  above  quoted,  the  county  auditors 
would  "  tend  to  eliminate  from  their  selection  as  unrepresentative 
all  sales  which  tended  to  raise  the  assessed  values  as  returned  by 
the  assessors,  and  to  include  whether  representative  or  not  all 
sales  which  tended  to  confirm  the  assessors  in  their  work."^ 
When  it  is  considered  that  the  county  auditors  had  at  that  time 
certain  supervisory  responsibiUty  over  the  work  of  the  local  asses- 

•  Ohio  Tax  Commission,  Report,  19 11,  p.  68. 

*  Personal  Letter  from  A.  E.  James,  June  5,  191 2. 


486 


THE  STATE  TAX  COMMISSION 


sors,  weight  is  given  to  this  interpretation  of  their  probable  action 
under  the  circumstances.  At  any  rate,  the  conclusions  of  the 
Ohio  tax  commission,  after  such  an  unsatisfactory  trial  of  the 
merits  of  the  sales  method,  can  only  be  regarded  as  the  conclusions 
of  ignorance  or  prejudice  for  in  no  case  was  the  system  given  a 
thorough  test. 

The  first  result  of  the  real  estate  appraisal  of  1 910  was  a  tremen- 
dous advance  in  valuations  all  over  the  state.  It  was  an  undis- 
puted fact  that  property  had  been  assessed  at  the  most  widely 
varying  ratios  of  true  value,  though  on  the  average  far  below  that 
level.  The  total  local  assessment  of  real  property  for  1910,  the 
last  year  under  the  old  regime,  was  $1,661,669,958.  The  results  of 
the  new  appraisal  were  as  follows : 

Assessment  and  Equalization  of  Real  Property  in  1910^ 
(miluons) 


Districts 

Quadrennial 
appraisers 

Local  boards 

Tax  commis- 
sion 

Amount 
added  bytax 
commission 

13th  census 

valuation  of 

farm  land 

and  buildings 

Townships 

Corporations 

$1,229.4 
2,323.6 

$1,338.0 
2,410.9 

$1,678.6 
2,547-9 

$341.0 
I37-I 

Totals 

$3,5S3-0 

$3,748.9 

$4,226.5 

$478.1 

$1,654.2 

Strong  emphasis  was  laid  in  the  appraisal  upon  the  legal  stand- 
ard of  full  cash  value,  and  this  emphasis,  together  with  a  general 
pubUc  sentiment  in  favor  of  higher  valuations,  led  the  local 
appraising  ofiScials  to  make  the  most  satisfactory  assessment  of 
real  estate  that  had  ever  been  made  in  the  history  of  the  state. 
Credit  for  this  advance  is  due  to  several  factors. 

In  the  first  place  the  tax  Kmit  law  goaded  many  locaUties  on  to 
much  higher  valuations.^  On  the  customary  valuations  the  tax 
rates  in  many  tax  districts  had  mounted  to  $4.00  and  higher  per 
$100.  The  tax  Kmit  law  of  1910  restricted  the  levy  to  ten  mills  on 
the  dollar,  with  an  additional  five  mills  for  certain  sinking  fund 

^  Ohio  Tax  Commission,  Report,  1911,  pp.  216,  217. 

^  R.  M.  Dittey,  "  The  Uniform  Rule  and  Tax  Limit  Legislation  in  Ohio,"  Pro- 
ceedings of  the  National  Tax  Conference,  191 2,  p.  229. 


THE  TAX  COMMISSION  OF  OHIO  487 

and  emergency  purposes.^  If  in  any  year  the  ten  mills  would  not 
produce  an  amount  equal  to  the  taxes  levied  in  any  district  in 
1909,  plus  6  per  cent  in  191 1,  9  per  cent  in  191 2,  and  12  per  cent 
in  any  year  thereafter,  the  levy  might  be  increased  in  order  to 
obtain  this  minimum  revenue,  but  in  no  case  beyond  fifteen  mills. 
Various  changes  have  been  made  in  this  tax  Hmit  law  and  it  has 
become  one  of  the  storm  centers  of  the  tax  fight  in  Ohio.  The 
absolute  Hmitation  has  been  eliminated,  and  in  some  other  ways 
the  restriction  has  been  loosened  slightly;  ^  but  the  fundamental 
principle  stands,  and  the  two  leading  gubernatorial  candidates 
were  pledged  to  support  the  "  one  per  cent  "  law  in  191 6. 

It  was  apparently  expected  by  those  who  framed  this  law  that 
the  maximum  rates  authorized  therein  would  prove  attractive  to 
the  owners  of  intangibles,  for  an  amendment  of  191 1  carried  a 
rider  of  an  "  immunity  bath  "  for  those  who  had  neglected  to 
make  full  return  of  their  possessions  before  191 1.  With  the  fear 
of  back  taxes  removed  it  was  reasoned  that  taxpayers  would 
gladly  hasten  to  subject  their  bank  deposits  and  other  intangibles 
to  a  possible  maximum  rate  tax  of  i|  per  cent.  The  returns  of 
personal  property  do  show  a  marked  increase  after  19 10,  but  the 
aggregate  of  intangibles  represents  only  a  small  proportion  of  the 
amount  of  such  property  taxable  in  the  state.^ 

In  the  second  place  one  prolific  source  of  competitive  under- 
valuation —  the  direct  state  tax  —  had  been  practically  elimi- 
nated since  the  appraisal  of  1900.  The  direct  state  levy  for  general 
state  purposes  had  been  abandoned  in  1902,  but  the  state  con- 
tinued to  collect  a  tax  on  general  property  for  sinking  fund  and 
school  purposes,  the  total  levy  amounting  to  2.89  mills.  This 
levy  was  reduced  to  1.35  mills  in  1903,  and  in  1911  it  was  4.51 

1  loi  Ohio  Laws,  430. 

*  102  Ohio  Laws,  269  (191 1)  created  a  county  budget  commission  charged  with 
the  duty  of  supervising  the  operation  of  the  tax  Umit  law.  In  191 3  the  people  were 
permitted  to  extend  the  tax  levy  for  any  particular  purpose  for  not  to  exceed  five 
years,  provided  the  total  levy  was  kept  within  15  mills  (103  Ohio  Laws,  57).  In 
191 7  the  favorable  vote  required  to  fund  temporary  debt  without  including  the  in- 
terest and  sinking  fund  charges  within  the  10  mill  limit  was  reduced  from  two- 
thirds  to  a  bare  majority.    107  Ohio  Laws,  575. 

'  Special  Message  of  Governor  Cox  to  the  Extra  Session  of  the  Legislature,  July  20, 
1914,  p.  8.    Cf.  below,  p.  510. 


488  THE  STATE  TAX  COMMISSION 

mills.  The  state  tax  on  property  in  1902  was  $5,686,000;  in  1903 
it  dropped  to  $2,687,000,  from  which  point  it  rose  slowly  to 
$3,171,000  in  1910.  Meantime  the  state's  revenue  from  indirect 
taxes  had  risen  from  $2,530,000  in  1901  to  $8,396,000  in  1910.^ 
That  part  of  the  state  tax  which  was  levied  for  school  purposes 
was  redistributed  to  the  counties  at  the  rate  of  $2.00  for  each 
enumerated  child  of  school  age.  The  special  committee  of  the 
senate  reporting  in  19 10  pointed  out  however  that  the  redistri- 
bution of  even  this  relatively  small  sum  was  productive  of  some 
injustice.^  But  the  total  amount  involved  was  not  sufficiently 
large  to  be  a  material  factor  in  stimulating  competitive  under- 
valuation in  the  reappraisal  of  1910. 

In  the  third  place  the  presence  of  a  state  tax  commission  with 
sweeping  powers  of  supervisory  control  over  the  actions  and 
results  of  local  officials  provided  an  incentive  for  a  more  thorough 
appraisal  than  had  ever  before  been  attempted.^  The  tax  legisla- 
tion of  1 910  gave  the  tax  commission  authority  over  the  decennial 
boards  of  appraisal,  but  much  of  their  work  had  been  done  by  the 
time  that  the  commission  was  organized  and  ready  for  business. 
The  commission's  chief  opportunity  for  influencing  the  results, 
therefore,  lay  in  its  powers  of  reviewing  and  correcting  the  returns 
and  in  requiring  local  boards  to  review  and  correct  their  own  work. 
The  powers  of  review  were  vigorously  exercised  by  the  tax  com- 
mission and  in  all  twenty-eight  county  boards  and  thirty-two  city 
boards  were  ordered  to  reconvene  and  complete  their  work,  or  do 
it  over  again.*  Comparatively  httle  use  was  made  of  the  power  to 
order  reassessments;  and  of  the  seven  instances  in  which  reassess- 
ments were  made,  four  were  townships  and  three  were  villages,  so 
that  the  volume  of  property  reached  in  this  way  was  incon- 
siderable. No  specific  causes  were  assigned  by  the  commission 
for  the  various  reassessment  orders  issued. 

Finally,  as  a  factor  in  the  reform  movement,  underlying  not 
only  the  tax  limit  law  and  the  tax  commission  but  also  the  various 
corporation  taxes  which  had  been  earher  enacted,  was  the  growing 

*  Ohio  Tax  Commission,  Report,  191 1,  pp.  18,  19. 

*  Report  of  the  Special  Committee  0}  the  Senate,  1910,  p.  6. 

'  Some  of  the  cities  had  the  services  of  special  appraising  agencies. 

*  Ohio  Tax  Commission,  Report,  191 1,  pp.  48-50. 


THE  TAX  COMMISSION  OF  OHIO  489 

dissatisfaction  of  the  people  with  existing  tax  conditions.  Their 
unrest  was  the  fear  of  those  walking  in  darkness,  for  unseen  evils. 
They  rebelled  against  tax  rates  of  3  per  cent  and  4  per  cent  but 
again  and  again  they  had  refused  to  take  the  first  step  by  amend- 
ing the  constitution.  The  present  movement  represents  the  last 
rally  under  the  standard  of  the  general  property  tax.  It  was  dis- 
creditable to  the  state  tax  officials  that  they  contributed  to  the 
defeat  of  the  proposal  for  an  actual  reform  tax  amendment  in  the 
constitutional  convention  of  191 2. ^  The  amendment  finally  pro- 
posed by  the  convention  permitted  no  expression  of  choice  upon 
the  uniform  rule,  since  this  rule  was  reaffirmed  by  the  amend- 
ment. The  proposal  naturally  passed  because  of  the  additional 
features,  including  authorization  of  income  and  inheritance  taxes 
and  the  removal  of  the  exemption  from  future  issues  of  local 
pubHc  bonds. 

The  purpose  of  the  equalization  made  by  the  tax  commission 
was,  of  course,  the  correction  of  such  inequalities  as  had  developed 
in  the  process  of  local  appraisal  and  review.  The  small  state  levy 
rendered  the  problem  of  intercounty  equalization  relatively  of 
much  less  importance  than  the  equaHzation  among  the  tax  dis- 
tricts of  the  same  county  and  among  the  individuals  of  a  district. 
But  practically  nothing  was  done  with  the  last  of  these  problems 
as  the  commission  ordered  only  seven  reassessments,  all  in  small 
districts.  Greater  activity  was  displayed  in  equaUzing  among  the 
districts  of  the  same  county  and  few  districts  escaped  with  no 
change  in  the  local  figures.  These  corrections  were  always  in  the 
nature  of  a  flat  percentage  increase  applying  to  the  whole  dis- 
trict, and  were  in  addition  to  any  action  taken  by  the  district  or 
county  boards.  Average  values  of  land  in  adjoining  townships 
were  compared  and  special  agents  were  sent  into  some  counties. 
The  commission  states  that  some  special  investigations  were 
made  by  persons  familiar  with  local  conditions.  The  close  agree- 
ment of  the  total  assessed  valuation  of  the  land  in  townships  as 
equaHzed  by  the  commission  and  the  valuation  of  farm  lands  and 
buildings  as  returned  by  the  thirteenth  United  States  Census 
suggests  the  use  of  the  latter  as  a  guide.  The  various  county 
*  R.  M.  Dittey,  loc.  cit.     Cf.  below,  p.  505,  and  notes. 


490  THE  STATE  TAX  COMMISSION 

totals  display  a  similar  correspondence.^  Specific  recommenda- 
tions of  changes  needful  to  produce  equality  were  made  by  some 
local  boards,  and  in  other  cases,  especially  in  the  larger  cities,  the 
local  boards  of  review  voluntarily  corrected  their  own  figures. 
The  commission  usually  accepted  both  the  local  suggestions  and 
the  local  corrections  as  the  basis  for  its  own  action,  since  it  was  in 
no  position  to  test  either  the  original  or  the  amended  data. 

A  further  reason  for  careful  scrutiny  of  the  work  of  the  county 
boards  of  equalization  is  seen  in  the  fact  that  many  members  of 
such  boards,  being  county  officials,  were  candidates  for  reelection 
in  November,  1910,  and  refused  to  give  the  necessary  attention  to 
the  work  of  equahzation  during  the  campaign  months.  In  such 
equalization  as  was  undertaken,  their  attitude  was  influenced  by 
local  political  considerations.^ 

The  subsequent  changes  in  the  tax  law  have  all  contained  the 
assumption  that  in  the  event  of  another  general  reappraisal  of  real 
estate,  the  equalization  would  be  performed  by  the  state  tax  com- 
mission. In  certain  counties  the  auditors  have  made  use  of  their 
discretionary  authority  to  order  such  reassessments  for  the  pur- 
pose of  preserving  local  equality  and  in  order  to  obtain  sufficient 
revenue  for  local  needs.  In  these  cases  the  law  has  apparently 
required  the  complete  reassessment  of  the  county.  The  law  of 
191 5,  known  as  the  Parrett-Whittemore  Law,  was  held  uncon- 
stitutional in  a  case  brought  to  test  the  county  auditor's  authority 
to  order  a  reassessment  of  real  estate  in  certain  tax  districts.^ 

The  equaKzation  of  1910  was  confined  to  real  estate,  and  the 
commission  made  no  attempt  to  readjust  the  personal  property 
returns.  Since  19 10  no  formal  equalization  of  the  personalty 
assessments  have  been  made,  and  such  changes  as  the  commission 
has  ordered  have  come  as  the  result  of  appeals.  More  influence 
has  been  exerted  through  the  commission's  supervision  over  the 
original  assessment  and  the  detailed  results  of  these  assessments 
will  be  considered  below  in  connection  with  the  subject  of  central 
supervision."* 

^  Cf.  Thirteenth  Census,  1910,  vii,  pp.  320-328,  and  Ohio  Tax  Commission, 
Report,  1911,  pp.  70-216.    Cf.  also  table  above,  p.  486. 
*  Ohio  Tax  Commission,  Report,  1910,  p.  4. 
'  Godfrey  v.  O'Brien,  95  Ohio,  i.  *  Cf.  below,  pp.  501  S. 


THE  TAX  COMMISSION  OF  OHIO  49 1 

Great  as  was  the  improvement  in  the  assessment  of  real  estate, 
it  was  exceeded  relatively  by  the  gains  made  in  the  assessment  of 
mines  and  mining  property.  The  tendency  has  been  universal  to 
delay  the  extension  of  improved  methods  of  assessment  to  mining 
property,  and  through  the  combined  negligence  of  legislators  and 
tax  officials  these  properties  have  frequently  escaped  their  just 
burden.^  In  1901  the  total  assessment  of  coal-oil  and  mineral 
values,  which  the  assessors  were  required  to  return  separately, 
was  confined  to  three  counties  and  aggregated  only  $298, 794. ^  In 
191 1  mining  property  was  entered  on  the  dupHcate  at  $17,925,993 
and  the  commission  declared  that  these  properties  were  still 
undervalued.^  An  amendment  of  this  year  permitted  an  annual 
assessment  of  the  rights  to  mineral  deposits,  and  opened  the  way 
for  an  early  adjustment  of  the  taxable  basis  of  these  valuable 
rights.^  The  matter  has  not  been  referred  to  by  the  commission 
since  191 1,  and  no  further  data  are  available  on  the  subject.  In 
discussing  the  problems  of  mine  taxation  in  West  Virginia  the 
question  was  raised  whether  such  property  rights  could  be  prop- 
erly taxed  under  the  general  property  tax.^  This  question  is 
pertinent  also  in  Ohio,  though  it  is  of  academic  interest  only 
because  of  the  remote  prospects  of  a  change  in  that  system. 

The  Administration  of  Corporation  Taxes 

The  Taxation  of  Public  Utility  Corporations.  —  It  is  beyond  the 
scope  of  this  chapter  to  enter  into  the  history  of  corporate  taxa- 
tion in  Ohio,  extended  treatment  of  which  is  the  more  unneces- 
sary since  the  publication  of  Professor  Bogart's  Financial  History 
of  Ohio.  Before  turning  to  the  commission's  work  in  the  assess- 
ment of  corporations,  however,  the  chief  features  of  the  system  of 
corporate  taxation  will  be  briefly  reviewed.  Three  periods  may  be 
distinguished. 

I.  Prior  to  i8gj.  This  early  period  was  characterized  by  the 
use  of  the  general  property  tax  and  the  absence  of  central  admin- 
istration.  Railroad  taxation  began  under  the  Kelly  law  of  1846, 

^  Cf.  the  experience  in  West  Virginia,  Michigan,  and  Minnesota. 

^  Ohio  Ta.x  Commission,  Report,  191 1,  p.  26. 

'  Ibid.  *  102  Ohio  Laws,  89.  *  Cf.  above,  p.  336. 


492  THE  STATE  TAX  COMMISSION 

which  marked  the  final  stage  of  the  development  of  the  general 
property  tax.^  In  1852  every  canal,  turnpike,  insurance,  bridge, 
telegraph,  and  other  company  was  required  to  list  for  taxation,  at 
its  actual  value,  its  real  and  personal  property  within  the  state.^ 
The  real  property  was  to  be  returned  to  the  auditors  of  the  coun- 
ties where  the  same  was  located  and  the  personal  property  was  to 
be  apportioned  locally  on  the  mileage  basis.  Beginning  with  1859 
the  officers  of  railroad,  canal,  bridge,  insurance,  telegraph  or 
other  joint  stock  companies,  except  banks,  were  required  to  list 
their  personal  property  at  its  true  value  with  the  county  auditors.' 
Under  this  law  railroad  officials  were  allowed  to  assess  their  own 
companies  and  no  authority  existed  anywhere  to  remedy  inequali- 
ties. The  situation  led  to  the  separate  assessment  of  the  railroads 
in  1862  by  the  boards  of  county  auditors,  for  the  equahzation  of 
whose  figures  the  state  board  of  equalization  for  railroads  was 
established  in  1865.*  In  the  former  year  telegraph  companies 
were  taxed  on  their  gross  receipts,  while  express  companies  were 
subjected  to  a  tax  levied  on  the  gross  receipts  less  the  amount 
actually  paid  for  transportation  expenses.^  The  system  of  cor- 
poration taxes  thus  outlined  continued  without  substantial 
change  to  1893. 

2.  iSg^igio.  This  period  was  characterized  by  the  use  of 
taxes  on  gross  earnings  and  franchise  taxes  in  addition  to  the 
general  property  tax,  and  by  the  beginnings  of  central  adminis- 
tration of  corporation  taxes.  Some  use  had  been  made  of  taxes 
on  gross  receipts  before  1893  but  they  had  not  been  regarded  as 
excise  taxes  nor  had  their  use  been  as  general  as  it  became  in  the 
second  period.  It  has  already  been  noted  that  the  series  of 
additional  taxes,  with  the  new  state  board  for  their  administra- 
tion, were  the  alternative  chosen  instead  of  the  recommendations 
of  the  special  tax  commission  of  1893  for  general  administrative 
centralization.®  This  commission  had  estimated  that  the  rail- 
roads were  paying  taxes  on  a  25-30  per  cent  basis,  while  the  other 
property  was  paying  taxes  on  a  50-60  per  cent  basis.^  The  total 

1  Cf.  above,  pp.  53-56.         '  56  Ohio  Laws,  175.  ^  59  Ohio  Laws,  91. 

'  50  Ohio  Laws,  134.  *  Cf.  above,  p.  53.  ^  Cf.  above,  pp.  479,  480. 

^  Report  of  the  Tax  Commission  of  Ohio,  1893,  p.  59. 


THE  TAX  COMMISSION  OF  OHIO  493 

assessed  valuation  of  the  railroads  was  $105,000,000,  and  that  of 
horses  $47,000,000,  or  nearly  half  as  much.  In  order  to  equalize 
the  tax  burden,  the  commission  proposed  a  franchise  tax  on  gross 
earnings  in  addition  to  other  taxes.  Under  the  spell  of  the  prin- 
ciple of  excise  taxation  here  introduced  the  people  spent  some 
seventeen  years  experimenting  with  divers  taxes,  while  the 
administrative  chaos  continued. 

The  first  of  these  experiments  was  the  so-called  Nichols  law, 
passed  in  1893.'  The  original  purpose  of  this  act  was  to  improve 
the  taxation  of  express,  telephone,  and  telegraph  companies.  The 
state  treasurer,  auditor,  and  attorney-general  were  constituted 
a  board  of  state  appraisers,  the  earliest  function  of  which  was  the 
ad  valorem  assessment  of  the  property  of  the  three  classes  of 
corporations  above  mentioned.  All  of  these  corporations  were 
to  make  sworn  returns  of  the  amount  and  value  of  their  capital 
stock,  and  of  their  real  and  personal  property.  In  addition,  tele- 
graph and  telephone  companies  were  to  report  separately  their 
mileage  within  and  without  the  state,  while  the  express  com- 
panies were  to  return  the  gross  receipts  from  each  ofi&ce  in  the 
state.  In  assessing  the  property  the  board  was  to  be  guided  by 
the  value  of  the  capital  stock. 

The  principle  of  centrally  administered  ad  valorem  taxation, 
here  introduced,  was  not  further  developed  during  this  second 
period.  Instead,  excise  taxation,  levied  on  gross  receipts,  was 
widely  used.  The  first  application  of  the  excise  tax  was  a  rate  of 
2  per  cent  upon  the  gross  receipts  of  express  companies  in  1894.2 
In  this  year  also  sleeping  car  companies  were  subjected  to  an 
excise  tax  of  i  per  cent,  levied  upon  the  proportion  of  their 
capital  stock  which  represented  property  used  in  the  state.  The 
assessment  was  made  by  the  state  board  of  appraisers  and  asses- 
sors, to  which  sworn  returns  were  to  be  made.  In  1896  an  excise 
tax  of  one-half  per  cent  was  imposed  on  the  gross  receipts  of 
practically  all  other  public  utility  companies  in  addition  to  the 
regular  taxes  upon  tangible  property.^    The  excise  taxes  were 

^  90  Ohio  Laws,  330. 

*  91  Ohio  Laws,  237;  ibid.,  408,  for  tax  on  sleeping  car  companies. 
'  92  Ohio  Laws,  79.     The  list  included:    electric  light,  gas,  natural  gas,  pipe- 
line, waterworks,  street  railroad,  railroad,  messenger  and  signal  companies. 


494  THE  STATE  TAX  COMMISSION 

codified  by  the  so-called  Cole  law  of  1902,  and  extended  to  express, 
telegraph,  telephone,  and  union  depot  companies,  while  the  rate 
was  made  uniform  at  i  per  cent.^  In  1904  water  transportation 
and  heating  and  cooling  companies  were  added.'^  All  of  the 
receipts  from  the  excise  taxes  were  to  be  used  by  the  state  in  lieu 
of  direct  state  taxes  which  were  being  greatly  reduced. 

The  excise  taxes  upon  the  public  service  corporations  were 
paralleled  in  1902  by  a  franchise  tax  of  one- tenth  per  cent  upon 
the  proportion  of  the  capital  stock  representing  property  in  the 
state,  of  domestic  and  foreign  corporations  organized  for  profit, 
other  than  public  service  corporations.^ 

3.  igio  to  the  present.  —  These  changes  bring  the  outline  of  the 
development  of  corporate  taxation  up  to  19 10,  when  the  creation 
of  the  tax  commission  was  made  the  occasion  for  certain  impor- 
tant modifications  in  the  rates  levied  by  previous  laws  and  in  the 
administrative  methods.  This  period  is  marked  by  differentia- 
tion in  the  rates  of  excise  taxation  and  in  the  central  assessment 
of  all  property  of  these  corporations.*  Railroad  and  pipe-line 
companies  were  thereafter  to  pay  a  tax  of  4  per  cent  on  their 
gross  receipts;  express  and  telegraph  companies,  2  per  cent;  and 
other  public  service  companies,  1.2  per  cent.^  The  rate  on  the 
proportion  of  the  capital  stock  of  freight,  sleeping  car,  and  special 
equipment  car  companies  which  represented  property  used  in  the 
state  was  also  advanced  to  1.2  per  cent. 

The  most  important  administrative  change  in  corporate  taxa- 
tion in  1 9 10  was  the  abolition  of  the  various  assessing  and  equaliz- 
ing boards,  and  the  centrahzation  of  their  functions  into  the 
hands  of  the  tax  commission.  The  railroads  had  already  been 
assessed  for  1910  by  the  boards  of  county  auditors  when  the  tax 
commission  was  estabhshed,  and  the  principal  work  of  that  body 
in  connection  with  the  corporate  assessment  of  19 10  was  to  com- 
plete the  valuation  of  express,  telegraph,  and  telephone  com- 
panies for  local  taxation.  This  valuation  had  already  been  begun 
for  1 9 10  by  the  former  board  of  appraisers  and  assessors,  as  the 

^  95  Ohio  Laws,  136.  *  Cf.  Bogart,  op.  cil.  p.  343. 

^  97  Ohio  Laws,  324.  ^  loi  Ohio  Laws,  399. 

^  95  Ohio  Laws,  124. 


THE  TAX  COMMISSION  OF  OHIO  495 

commission  did  not  take  office  until  July  i.  The  partially 
finished  assessments  were  turned  over  to  the  commission  for 
completion;  but  owing  to  the  pressure  of  other  work,  the  unfamil- 
iarity  of  the  new  appointees  with  their  official  duties,  and  the 
unsatisfactory  character  of  the  data  returned  under  the  reports 
required  by  the  old  board,  the  commission's  action  was  confined 
chiefly  to  an  equalization  of  values.^  The  total  valuation  of  the 
three  classes  of  companies  was  increased  by  $6,828,686,  of  which 
$6,154,341  fell  upon  the  telephone  companies  alone.  This 
increase  is  only  partly  explained  by  the  rise  in  the  number  of 
telephone  companies  assessed,  from  518  in  1909  to  575  in  1910, 
but  no  other  explanation  is  offered  for  such  relatively  drastic 
action  in  a  year  when  the  only  aim  was  the  equalization  of  values. 
Since  191 1  the  commission  has  been  responsible  for  the  assess- 
ment of  all  public  utilities,  and  its  most  vigorous  and  efficient 
service  has  been  rendered  in  the  discharge  of  this  duty.  Very 
little  had  been  developed  by  the  earlier  boards,  either  of  prin- 
ciples or  practice,  that  was  worthy  of  preservation.  The  methods 
of  the  boards  of  county  auditors  in  the  assessment  of  railroads 
were  completely  discarded  and  the  railroad  valuations  were 
revolutionized.  The  commission  professed  to  follow  the  practice 
of  the  state  board  of  appraisers  and  assessors  under  the  Nichols 
law  in  using  the  market  value  of  the  stock  as  a  guide  in  valuing 
the  express,  telegraph  and  telephone  companies.  While  the  law 
does  not  now  require  the  use  of  this  criterion  of  value,  it  does  pro- 
vide that  the  market  value  of  the  stock  of  these  companies  shall 
be  determined,  and  the  commission  has  proceeded  upon  the 
theory  "  that  the  market  value  of  the  capital  stock  was  the 
equivalent  of  the  value  of  the  entire  property  of  the  company."  ^ 
But  the  former  state  board  had  apparently  used  the  statutory 
standard  as  the  maximum  while  the  commission  has  treated  it  as 
a  safe  minimum,  if  one  may  judge  from  the  differences  in  the 
valuations  obtained  by  the  two  boards.  The  tax  commission  has 
attempted  to  explain  the  differences  by  advancing  the  argument 
that  whereas  stock  market  values  were  in  excess  of  plant  values 

1  Ohio  Tax  Commission,  Report,  1910,  pp.  4,  5;  ibid.,  1911,  p.  23. 
*  Ibid.,  1911,  p.  28. 


496  THE  STATE  TAX  COMMISSION 

when  the  Nichols  law  was  passed,  the  reverse  is  true  today.^ 
Whether  this  argument  be  sound  or  not,  it  has  served  the  com- 
mission as  the  ground  for  making  heavy  and  continual  advances 
in  valuation. 

In  recent  years  the  principal  reliance  has  been  placed  upon  net 
earnings,  which  have  been  capitalized  at  rates  ranging  from  8  per 
cent  for  the  railroads  to  1 2  per  cent  for  natural  gas  and  pipe-line 
companies.  These  variations  in  the  rates  of  capitalization  were  in 
recognition  of  differences  in  the  permanence  of  the  investment 
and  variations  in  the  risk  involved  in  the  different  public  service 
industries.  2 

Numerous  critics  have  pointed  out  that  in  practice  this  is  the 
least  satisfactory  method  of  corporate  valuation.^  The  appor- 
tionment of  net  earnings  to  the  state  is  arbitrary,  the  selection  of 
a  proper  rate  of  capitalization  presents  numerous  difficulties  and 
the  strict  rehance  upon  the  net  earnings  as  the  basis  of  taxable 
value,  waiving  the  above  objections  to  this  plan,  results  in  favor- 
ing the  utility  corporations  in  a  way  that  other  enterprises  are  not 
favored.  The  choice  of  rates  of  capitaHzation  has  also  been 
criticized.  The  auditor  of  Cuyahoga  county  recently  published 
data  which  indicated  a  discrepancy  of  some  $32,268,000  between 
the  stock  and  bond  market  value  and  the  assessed  value  of  the 
railroads  in  Cuyahoga  county.^  Although  without  legal  warrant, 
the  use  of  high  rates  of  capitaHzation  affords  a  roughly  equitable 
compensation  to  the  utilities  for  the  additional  burden  involved 
in  the  excise  taxes.  In  other  states  the  legal  objections  to  equaliz- 
ing corporate  assessments  with  other  assessments  have  some- 
times led  to  a  similar  adjustment.^  In  Ohio  an  equalization 
between  the  public  utilities  and  other  corporations  is  doubtless 
required,  but  it  should  be  attained  by  additional  taxes  upon  the 
private  companies,  which  appear  to  be  quite  inadequately  reached 
under  existing  tax  laws.^ 

'  Ohio  Tax  Commission,  Report,  191 1,  p.  28. 

*  Personal  Interview  with  Commissioner  A.  B.  Peckinbaugh,  April  4,  1915. 
'  E.  g.,  Minnesota  Tax  Commission,  Report,  191 2,  pp.  208,  209. 

*  J.  A.  Zangerle,  As  To  Taxation  of  Steam  Railroads  in  Cuyahoga  County,  p.  22. 
'  Cf.  e.  g.,  the  discussion  of  the  situation  in  Michigan. 

*  Cf.  H.  L.  Lutz,  "  The  Taxation  of  Corporations  in  Ohio,"  Proceedings  of  the 


THE  TAX  COMMISSION  OF  OHIO  497 

The  results  of  central  corporate  assessment  in  Ohio  have  been 
quite  remarkable.  The  figures  for  1910,  1911,  and  191 6  are  pre- 
sented below.  ^  Reference  to  this  table  will  show  that  extraor- 
dinary increases  have  been  made  in  the  valuation  of  every  class  of 
company.  These  increases  were  in  part  the  natural  result  of  the 
state- wide  campaign  for  the  elevation  of  the  standard  of  valuation. 
The  limitation  of  the  tax  rate  rendered  imperative  a  sufficient 
increase  in  valuation  to  compensate  for  the  reduction  of  the  rate. 
Further,  the  commission  took  the  duty  of  corporate  assessment 
more  seriously,  at  the  outset,  not  only  because  of  the  direct 
responsibility  involved  but  also  on  account  of  the  general  desire 
to  see  the  taxes  of  corporations  increased.  In  consequence  the 
total  valuation  of  the  corporations  centrally  assessed  increased  in 
191 1  by  246  per  cent  over  1910,  while  real  estate  assessments  in- 
creased by  only  154  per  cent.  More  significant  even  than  the 
increase  in  the  volume  of  assessment  was  the  gain  in  the  number 
of  companies  assessed.  This  meant  that  a  considerable  number  of 
corporations  had  been  escaping  taxation  altogether  under  the 
former  regime.  Vigorous  pursuit  of  delinquent  companies  has 
been  characteristic  of  the  persistent  and  aggressive  poHcy  fol- 
lowed by  the  commission  and  greater  equality  has  thereby  been 
attained  among  the  corporations  themselves. 

The  available  data  do  not  permit  a  comparison  of  the  bases  of 
valuation  used  now  for  corporations  and  other  property,  nor  for 
comparison  of  the  tax  burden  upon  different  classes  of  corpora- 
tions. In  the  latter  case,  however,  it  should  be  noted  that  some 
wide  variations  occur  in  the  relation  of  the  assessed  valuation  to 
the  volimie  of  gross  receipts  returned  under  the  excise  tax  law. 
The  table  on  the  next  page  presents  some  of  the  more  striking 
variations  in  191 2  and  1914.^ 

It  is  admitted  that  gross  receipts  do  not  form,  for  all  classes  of 
corporations,  an  equally  safe  criterion  of  the  value  of  the  prop- 
erty used  in  the  business.  There  are  many  variations  in  the  rela- 
tive importance  of  fixed  plant  to  the  volimie  of  receipts.    The 

Tax  Conference  and  Fourth  Annual  Meeting  of  the  Ohio  Municipal  League,  1915, 
pp. 16 ff. 

'  Cf.  below,  p.  508.      *  Compiled  from  the  annual  reports  of  the  Tax  Commission. 


498  TEE  STATE  TAX  COMMISSION 

variations  that  are  shown  here,  however,  seem  to  be  excessive 
even  after  allowing  for  the  differences  in  the  extent  of  interstate 
business  performed.  Wide  differences  exist  in  the  relation  of 
assessment  to  gross  receipts  between  classes  of  corporations 
whose  physical  equipment  and  business  present  certain  resem- 

Ratios  of  Assessed  Valuation  to  Gross  Receipts 

Corporation  1912                        1914 

Express  companies .88                    .758 

Telegraph       "        11.00  11. 2 

Telephone       "        4.7                    4.34 

Pipe-line         "        16.0  20.5 

Natural  gas    "  ^     3.4                     3.54 

Union  depot    "       ii.o  14.3 

Waterworks    "        7.0                    5.4 

Heating  and  cooling  companies 2.7                    1.9  * 

blances,  as  for  example,  between  the  pipe-line  and  the  natural  gas 
companies,  the  waterworks  and  the  heating  and  cooling  com- 
panies, or  the  telegraph  and  telephone  companies.^ 

The  valuations  which  are  determined  by  the  commission  are 
apportioned  by  it  to  the  taxing  districts  on  the  mileage  basis. 
The  moneys  and  credits  are  to  be  distributed  in  such  a  way  as  to 
equalize  the  real  estate,  structures,  and  stationary  personal  prop- 
erty in  each  district  in  proportion  to  the  whole  valuation  of  the 
tangible  property  in  the  state.* 

The  codification  of  the  corporation  tax  laws  by  the  act  of  1916 
did  not  eliminate  the  two  surtaxes  which  had  been  developed  in 
the  preceding  period  of  experimental  and  piecemeal  tax  legisla- 
tion. These  were  the  excise  tax  on  public  utilities  and  the  fran- 
chise tax  on  the  capital  stock  of  other  corporations.  The  proceeds 
of  these  taxes  go  into  the  state  treasury,  and  their  retention  in 
1 9 10  was  a  part  of  the  scheme  for  the  separation  of  the  sources  of 
state  and  local  revenues  that  had  distracted  public  attention  for 
so  long  from  more  fundamental  matters  of  tax  reform. 

^  Includes  artificial  gas  companies  in  1914. 
''  Includes  data  for  one  company  only  in  19 14. 

*  Cf.  Report  of  the  Special  Tax  Commission  of  Ohio,  1908,  pp.  28-30,  for  similar 
criticisms. 

*  102  Ohio  Laws,  224. 


THE  TAX  COMMISSION  OF  OHIO  499 

There  is  no  need  here  to  enter  into  a  discussion  of  the  principles 
underlying  the  plan  of  separation  of  sources.  It  appears  certain, 
however,  that  Ohio  dallied  with  projects  for  separation  to  the 
detriment  of  a  more  thorough  reform  in  the  tax  system.  There 
are  good  grounds  for  thinking  also  that  the  retention  of  the  excise 
taxes  at  the  rates  now  in  vogue  has  meant  unduly  heavy  taxation 
of  some,  if  not  all,  classes  of  utilities  in  comparison  with  other 
corporate  property.  For  example,  in  191 1  the  steam  railroads 
paid  an  excise  tax  of  $1,787,853,  in  addition  to  the  general  taxes 
upon  an  assessed  valuation  of  $571,281,620.  There  has  been  no 
oflScial  determination  of  the  average  rate  of  taxation  but  in  view 
of  the  limitation  imposed  in  1910,  the  average  could  not  have 
been  far  from  i  per  cent.  Assuming  this  figure,  the  local  taxes  of 
Ohio  railroads  would  have  been  $5,712,816,  or  a  total  of  state  and 
local  taxes  of  $7,699,669.  This  burden  of  taxes  should  be  com- 
pared with  that  imposed  by  other  states.  In  191 2  the  Minnesota 
tax  commission  prepared  various  estimates  of  the  valuation  of  the 
railroads  in  that  state,  which  ranged  from  $415,000,000  to  $574,- 
000,000.  The  taxes  actually  paid  in  191 1  on  gross  receipts  in 
Minnesota  were  $3,670,760,  and  had  the  rate  been  5  per  cent 
instead  of  4  per  cent,  the  tax  paid  would  have  been  $4,588,450.^ 
The  Wisconsin  railroads  paid  $3,330,000  in  taxes  in  191 1  on  a 
valuation  of  $297, 935,000. ^  On  the  Ohio  valuation  they  would 
have  paid  $6,341,225,  or  more  than  $1,000,000  less  than  the 
estimated  total  for  the  Ohio  roads. 

The  excise  tax  law  was  amended  in  191 1  in  a  way  that  appears 
to  penalize  the  pubKc  utility  still  more  unfairly.  The  amendment 
defined  "  gross  earnings  "  to  be  the  "  entire  earnings  for  business 
done  by  an  incorporated  company  engaged  in  the  operation  of  a 
public  utility  under  the  exercise  of  its  corporate  powers,  whether 
from  the  operation  of  the  public  utility  itself  or  from  any  other 
business  done  whatsoever."  ^  Under  this  section  the  commission 
held  in  one  case  that  income  from  rents,  dividends,  and  subsidiary 
companies  were  to  be  included  in  the  gross  earnings  of  a  public 
utility.   The  law  and  the  above  ruling  appear  to  be  aimed  at  the 

1  Minnesota  Tax  Commission,  Report,  1912,  ch.  15.      '  102  Ohio  Laws,  224. 
'  Wisconsin  Tax  Commission,  Report,  191 1,  p.  35. 


500  THE  STATE  TAX  COMMISSION 

utilities  holding  company,  but  the  method  of  reaching  such  earn- 
ings is  capable  of  harmful  effects  in  some  cases. ^  The  commission 
adds  the  recommendation  that  in  view  of  the  fact  that  public 
utility  companies  are  pajdng  taxes  on  the  full  value  of  their  prop- 
erty, no  increase  should  be  made  in  the  excise  and  franchise 
taxes  now  required  of  such  corporations.  The  4  per  cent  rate  on 
gross  earnings  has  been  appealed  from  by  two  roads  as  being  a 
confiscatory  rate,  but  no  decision  has  at  yet  been  reached. 

Less  objection  arises  against  the  franchise  tax  of  three-twen- 
tieths per  cent  levied  upon  the  capital  stock  of  domestic  corpora- 
tions organized  for  profit,  and  upon  the  proportion  of  the  capital 
stock  of  foreign  corporations  represented  by  property  owned  and 
business  transacted  in  the  state.  This  is  also  a  surtax  carried  over 
from  the  former  regime;  it  is  paid  to  the  state  for  state  pur- 
poses in  addition  to  the  local  taxes  upon  the  assessed  valuation. 
But  the  private  corporations  pay  local  taxes  upon  valuations 
which  were  determined  locally  except  in  certain  instances  under 
the  Parrett-Whittemore  law,^  while  in  the  case  of  the  pubHc 
utilities  the  local  rates  are  applied  to  valuations  centrally  deter- 
mined. There  can  be  little  doubt  that  notwithstanding  the  im- 
provement of  local  assessments,  the  tax  commission  has  held  a 
higher  standard  of  valuation  in  assessing  pubKc  utiHties  than  the 
local  assessors  have  used  in  valuing  the  tangible  property  of 
private  corporations. 

The  commission's  administrative  duty  in  connection  with  the 
excise  tax  is  the  ofl&cial  determination  of  the  proper  amounts  of 
such  taxable  receipts,  the  chief  source  of  information  being  the 
reports  of  the  companies  themselves.  A  thorough  system  of 
inspection  has  been  maintained,  and  in  191 1  the  examiners  dis- 
covered $3,714,000  of  omitted  gross  receipts.  In  191 2  the  omis- 
sions amounted  to  $1,123,000.^    The  proportion  of  the  capital 

*  Ohio  Tax  Commission,  Report,  1912,  p.  12.  This  law  was  sustained  in  The 
Ohio  Tax  Cases,  232  U.  S.,  576. 

*  Cf.  below,  p.  501. 

'  Ohio  Tax  Commission,  Report,  1911,  p.  451;  ibid.,  1912,  p.  412.  No  figures 
have  been  published  since  191 2  but  in  1916  the  commission  announced  that  it  ex- 
pected soon  to  certify  to  the  state  treasurer  a  large  amount  of  delinquent  excise 
taxes  covering  the  past  five  years.    Report,  1916,  p.  8. 


THE  TAX  COMMISSION  OF  OHIO  50I 

stock  of  private  companies  which  shall  be  subject  to  the  franchise 
tax  is  determined  from  detailed  reports  made  by  the  companies. 
So  far  as  can  be  learned,  no  special  system  of  inspection  is 
maintained  for  these  reports. 

The  Assessment  of  Private  Corporations.  — The  revision  of  the 
tax  laws  in  191 5  introduced  a  provision  requiring  the  tax  com- 
mission to  assess  the  property  of  all  intercounty  corporations.' 
These  corporations  were  to  return  their  lists  to  the  auditor  of  the 
county  in  which  their  principal  place  of  business  was  located,  or 
(if  the  principal  place  of  business  was  outside  the  state)  to  the 
auditors  of  any  counties  in  which  they  did  business  or  held  prop- 
erty. These  officials  were  to  transmit  the  returns  to  the  state 
tax  commission,  by  whom  the  assessment  was  to  be  made  and  the 
final  valuation  apportioned  to  the  various  counties  in  which  the 
property  was  located.  The  attorney-general  ruled  that  the  sec- 
tion in  question  did  not  authorize  an  assessment  of  the  property 
of  the  manufacturing,  mercantile,  and  other  corporations  involved 
under  the  unit  rule,^  and  the  commission  has  been  compelled  to 
assess  separately  the  different  items  of  property  as  these  were 
returned  by  their  corporate  owners.  This  ruHng  harmonized  the 
assessment  of  the  private  corporations,  whether  assessed  by  local 
or  by  central  authority ;  but  it  perpetuated  the  discrimination  in 
assessment  methods  as  applied  to  the  private  and  the  pubUc  serv- 
ice companies.  No  data  are  at  hand  as  to  the  operation  of  this 
section  of  the  tax  law.  The  revision  of  1917  returned  all  private 
corporations  to  the  local  assessment  jurisdiction. 

Supervision  of  the  Local  Officials 

The  tax  commission  was  also  given  in  19 10  sweeping  powers  of 
control  over  the  local  assessors,  and  was  placed  in  charge  of  the 
various  administrative  duties  which  hitherto  had  been  performed 
by  the  state  auditor.  The  latter  official  had  held  a  place  of  some 
importance  in  the  taxing  system  since  the  introduction  of  the 
general  property  tax.  He  had  published  the  tax  laws,  and  through 
the  county  auditors  he  had  issued  instructions  to  the  assessors. 

'  106  Ohio  Laws,  249,  §  13. 

*  Attorney-General's  Rulings,  February  23,  1916,  Dept.  Rep.  iii,  p.  818. 


502  THE  STATE  TAX  COMMISSION 

The  assessment  forms  had  also  been  prepared  under  his  super- 
vision. His  authority  was  in  no  sense  supervisory,  however,  and 
was  utterly  inadequate  for  the  needs  of  the  case. 

The  chief  supervisory  duties  of  the  new  tax  commission  were 
the  following :  the  preparation  of  all  forms  used  by  local  assessors, 
and  the  compilation  of  such  instructions  as  were  deemed  neces- 
sary; the  oversight  of  the  proper  enforcement  of  all  laws  relating 
to  taxation;  the  authority  to  order  reassessments  in  any  tax 
district;  and  the  duty  of  hearing  appeals  and  complaints. 

According  to  Governor  Harmon,  the  commission  had  the  power 
under  the  act  as  amended  to  "  make  all  examinations  necessary 
to  secure  information  required  for  the  discharge  of  its  duties  with 
respect  to  all  kinds  of  property."  ^  Under  this  general  grant  of 
authority  the  Governor  believed  that  the  commission  could  re- 
quire banks  and  loan  and  trust  companies  to  disclose  the  partic- 
ulars of  individual  deposit  accoimts.  Section  162  of  the  bill  as 
amended  in  191 1  prohibited  the  commission  from  pushing  its 
investigations  this  far,  but  the  section  was  vetoed  by  Governor 
Harmon  on  the  ground  of  being  a  practical  exemption  of  these 
classes  of  property.  The  tax  law  of  19 13  definitely  forbade  the 
invasion  of  the  privacy  of  bank  books  and  the  records  of  other 
financial  institutions.^ 

The  use  of  the  power  to  order  reassessments  has  been,  up  to  the 
present  time,  but  insignificant.  In  191 1  and  again  in  191 2  the 
commission  brought  strong  pressure  to  bear  upon  the  local  asses- 
sors for  a  more  complete  listing  and  assessment  of  personal  prop- 
erty. The  results  of  these  efforts  will  be  taken  up  below.' 
Notwithstanding  the  assertion  of  ex-chairman  Dittey  that  these 
results  furnish  "  convincing  proof  that  substantially  all  property 
now  taxable  under  our  laws  can  and  will  be  placed  upon  the  tax 
list  and  pay  taxes,  even  though  the  present  laws  remain  un- 
changed," *  the  commission  recommended  in  1913  a  revolution 

^  Cf.  Veto  Message  of  Governor  Harmon,  in  102  Ohio  Laws,  260,  261. 

*  Cf.  the  references  to  this  subject  in  the  Commission's  Report  for  1914,  p.  7, 
and  ibid.,  1915,  p.  10.  The  language  is  rather  vague  but  it  contains  the  implication 
that  the  commission  would  welcome  the  authority  to  inspect  such  records. 

'  Cf.  below,  pp.  505  ff. 

*  R.  M.  Dittey,  "  The  Uniform  Rule  and  Tax  Limit  Legislation  in  Ohio," 
Proceedings  of  the  National  Tax  Conference,  191 2,  p.  233. 


TEE  TAX  COMMISSION  OF  OHIO  503 

of  the  whole  assessment  machinery  along  the  line  proposed  twenty 
years  earher  by  the  special  tax  commission  of  1893.^ 

The  act  of  1913  was  the  most  radical  administrative  change  in 
taxation  that  has  yet  been  undertaken  in  the  United  States.  The 
central  and  most  important  feature  was  the  erection  of  new  assess- 
ment districts,  coincident  with  the  boundaries  of  counties,  and  the 
substitution  of  district  assessors  or  deputy  tax  commissioners, 
as  they  were  called,  appointed  by  the  governor,  for  the  locally 
elected  township  and  ward  assessors.  The  district  assessors  might 
be  removed  by  the  tax  commission,  with  the  consent  of  the  gover- 
nor. Special ''  District  Boards  of  Complaint  "  were  also  provided, 
the  appointment  and  removal  in  this  case  being  vested  in  the  tax 
commission  with  the  approval  of  the  governor.  In  counties  of 
more  than  65,000  population  at  the  last  federal  Census,  two 
assessors  were  to  be  chosen,  of  different  poHtical  parties.  Not 
more  than  two  members  of  the  board  of  complaints  were  to  be  of 
the  same  party.  All  of  the  duties  formerly  performed  by  the 
county  auditor  were  transferred  to  the  district  assessors,  who  were 
authorized  to  appoint  deputies  and  clerical  assistants  with  the 
approval  of  the  tax  commission.  Under  the  direction  of  the  latter 
all  property,  real  and  personal,  was  to  be  assessed  annually ;  the 
final  results  of  the  county  assessment  were  to  be  equalized  by 
the  tax  commission  and  appeals  were  to  be  taken  to  it  from 
the  decisions  of  the  county  boards  of  review. 

This  radical  innovation  was  not  allowed  a  fair  test,  for  the  turn 
of  the  poHtical  wheel  brought  into  office  in  1914  an  opposing  polit- 
ical administration  which  was  pledged  to  overthrow  the  legisla- 
tion of  its  predecessors.  The  administrative  features  of  the  tax 
law  were  entirely  recast^ — the  county  auditor  was  made  county 
assessor  ex  officio,  the  local  assessor  was  again  made  an  elective 
officer,  and  a  bipartizan  board  of  review  was  to  be  appointed  by 
a  board  consisting  of  certain  elective  coimty  officers. 

The  tax  law  of  191 5  was  nullified  by  the  court^  after  being  in 
operation  for  only  one  assessment,  and  in  191 7  a  new  law  was 

'  Cf.  above,  p.  479.  Also,  Recommendations  of  the  Tax  Commission  of  Ohio  to 
the  Governor  and  General  Assembly,  February,  1913.  This  law,  known  as  the  Wames 
Law,  is  in  103  Ohio  Laws,  786. 

*  106  Ohio  Laws,  246. 


504  THE  STATE  TAX  COMMISSION 

passed.^  This  law  retains  the  local  administrative  machinery  as 
established  in  the  act  of  191 5.  The  principal  change  introduced 
was  in  the  method  of  listing  personal  property.  The  county 
auditor  may  send  Hsting  blanks  prior  to  the  second  Monday  of 
April  to  all  persons  liable  to  taxation  on  personal  property.  These 
blanks  are  to  be  filled  out  by  the  taxpayer  and  sworn  to  before 
the  assessor  or  any  notary  and  returned  to  the  auditor  before 
May  I .  The  assessor  calls  upon  those  who  have  failed  to  return, 
or  have  made  an  improper  return,  by  this  date.  Failure  to  make 
the  return  will  be  penaHzed  by  the  loss  of  the  exemption  of  $100 
and  the  imposition  of  a  50  per  cent  penalty.  Real  estate  may  be 
reassessed  at  the  discretion  of  either  the  county  auditor  or  the 
state  tax  commission. 

These  changes  in  the  tax  law  have  followed  each  other  so 
quickly  that  there  is  little  opportunity  for  critical  comparison. 
It  is  exceedingly  unfortunate  that  all  of  these  measures  have  been 
to  so  great  a  degree  the  product  of  partizan  poKtical  influences, 
from  which  it  seems  impossible  soon  to  free  the  whole  administra- 
tive machinery  of  Ohio.  Advantage  was  taken  of  the  extreme 
centralization  of  power  under  the  act  of  1913  to  make  a  long  hst 
of  poHtical  appointments,  and  so  to  strengthen  the  party  ma- 
chine in  the  state.  The  opposing  administration  snatched  this 
power  from  the  governor,  but  it  has  thrown  much  of  the  adminis- 
trative organization  into  the  arena  of  local  partizan  politics,  and 
between  these  two  extremes  there  is  little  to  choose. 

Whatever  the  type  of  administrative  organization,  the  crucial 
test  of  its  efficiency  will  be  the  results  secured  under  the  general 
property  tax.  Especially  is  this  true  in  Ohio,  where  so  many 
efforts  to  modify  this  system  of  taxation  have  failed.  Former 
members  of  the  tax  commission  have  been  of  the  opinion  that 
"  when  the  administrative  features  of  the  present  laws  are  im- 
proved, as  may  easily  be  done,  there  will  be  little  difficulty  in 
securing  the  return  of  all  personal  property  and  having  it  assessed 
at  full  value,"  In  191 1  the  conviction  was  expressed  that  "  the 
Ohio  system  is  wise,  sound  in  principle,  and  fundamentally  just, 
and  (that)  by  proper  administration  the  gross  evils  heretofore 

*  107  Ohio  Laws,  29. 


THE  TAX  COMMISSION  OF  OHIO  505 

existing  can  readily  be  corrected."  ^  The  present  members  of  the 
tax  commission  would  probably  not  subscribe  to  this  particular 
statement,  but  they  have  not  taken  that  positive  stand  against 
the  general  property  tax  which  would  be  consistent  with  strong 
conviction  of  its  many  defects.  On  the  other  hand  their  references 
to  the  use  of  inquisitorial  power  in  order  to  list  bank  deposits 
silences  any  mild  disclaimer.  Certainly  through  the  state  at  large 
there  is  yet  a  considerable  majority  who  would  endorse  the  earUer 
view  of  the  tax  commission. ^  The  test  of  the  soundness  of  such 
views,  so  at  variance  with  general  experience,  is  readily  made,  and 
for  that  purpose  an  analysis  of  the  personal  property  assessments 
for  certain  years  has  been  prepared.^ 

The  results  of  this  analysis  for  the  year  19 10  are  quite  similar 
to  those  found  in  other  states  at  the  beginning  of  central  admin- 
istration. Farm  animals  composed  the  bulk  of  the  tangible 
property;  and  the  intangible  property,  while  forming  a  larger 
proportion  of  the  total  personalty  assessment  than  in  some 
other  states,  clearly  included  only  a  nominal  return  of  certain 
forms  of  wealth,  notably  moneys  and  credits.  The  amount  of 
credits  returned  in  1876  was  greater  than  in  any  subsequent  year, 
except  one,  up  to  19 10. 

Only  the  figures  from  1910  to  1913  are  strictly  comparable, 
since  the  assessments  for  1914  and  191 5  were  made  under  the 
direct  control  of  the  tax  commission.  During  these  comparable 
years  notable  increases  were  made  in  most  of  the  classes  of  tan- 
gible property,  especially  merchants'  and  manufacturers'  stock, 
which  for  the  first  time  were  placed  on  an  adequate  basis  of  valua- 
tion. But  in  the  two  critical  classes  of  intangible  property  the 
commission  had  begun  to  lose  ground  by  1913.  The  total  of 
moneys  returned  in  1913  was  less  than  in  191 2,  and  the  rate  of 
increase  in  the  assessment  of  credits  was  considerably  slackened. 

*  Ohio  Tax  Commission,  Report,  191 1,  pp.  37,  38. 

*  The  former  chairman,  R.  M.  Dittey,  was  largely  responsible  for  such  views. 
Cf.  his  addresses,  "  Taxation  and  Gas  Companies,"  Feb.  7,  1912;  "  The  Taxation 
of  Newspaper  Properties,"  Feb.  14,  191 2;  "  Proposed  Constitutional  Changes  in 
Taxation,"  Feb.  27,  191 2.  Also,  Albert  J.  Nock's  characterization  of  Mr.  Dittey 
reprinted  from  Collier's  Weekly,  June  15,  191 2. 

*  Cf.  below,  pp.  509,  510. 


5o6  TEE  STATE  TAX  COMMISSION 

The  commission's  policy  evidently  forced  taxpayers  to  dispose  of, 
or  secrete  more  carefully,  their  holdings  of  securities,  and  so  the 
total  of  this  class  for  1913  fell  below  the  figures  of  191 2.  All  along 
the  line,  then,  in  1 913  the  Ohio  tax  commission  had  begun  to  lose 
ground  in  its  attempt  to  force  all  property  on  the  duplicate. 

The  returns  for  1914  were  quite  remarkable  in  many  ways  but 
they  demonstrated  even  more  convincingly  the  collapse  of  the 
general  property  tax.  Through  the  appointive  assessors  the  com- 
mission added  over  $100,000,000  to  the  assessment  of  manufac- 
turers' stocks,  and  made  significant  increases  in  the  returns  of 
farm  animals,  vehicles,  and  musical  instriunents.  The  group  "  all 
other  property  "  was  excessively  large  in  1913,  and  in  19 14  it  was 
broken  up  by  separating  a  number  of  forms  of  household,  per- 
sonal, and  office  belongings,  vessels,  machinery,  and  farm  wagons, 
which  reached  the  total  of  $133,300,000.  In  the  intangible  group 
the  most  startling  gain  was  in  stocks  and  bonds;  but  this  in- 
cluded the  assessment  against  the  Rockefeller  estate,  amounting 
to  $311,000,000,  afterward  disallowed  by  the  courts.  This  fiasco 
of  the  Cleveland  deputy  assessors  was  successful  only  in  diverting 
public  attention  from  certain  other  defects  in  the  administration 
of  the  tax  system,  especially  the  well-known  fact  that  many  other 
owners  of  large  amounts  of  such  property  were  escaping  with 
comparatively  light  taxes.  The  improvement  in  the  assessment 
of  credits  was  due  to  special  efforts  made  by  the  tax  commission 
to  trace  and  assess  mortgages.  A  high  proportion  of  those  dis- 
covered were  naturally  Hsted  by  the  assessors,  who  were  under 
the  control  of  the  tax  commission.  The  amount  of  moneys 
returned  was  about  20  per  cent  of  the  total  bank  deposits  in  the 
state  in  1914.^ 

The  figures  for  191 5  require  little  comment.  SHght  losses  in 
live  stock,  merchants'  stocks,  and  other  tangibles  are  somewhat 
more  than  counterbalanced  by  the  gains  in  vehicles  and  manufac- 
turers' stocks.  The  gain  in  credits  is  overbalanced  by  the  losses  in 
the  return  of  moneys  and  investments  in  stocks  and  bonds.     On 

'  Cf.  Taxation  in  Ohio,  Report  of  the  Civic  League  of  Cleveland,  1915,  pp.  8,  9. 
It  is  here  estimated  that  not  one-third  of  the  taxable  intangibles  held  in  the  state 
are  on  the  duplicate. 


THE  TAX  COMMISSION  OF  OHIO  507 

the  whole,  the  second  year  of  state  controlled  assessment  of  per- 
sonal property  shows  a  disappointing  amount  of  intangibles 
secured,  that  is,  it  should  disappoint  those  who  have  stood  so 
firmly  for  the  tax  system  which  was  here  being  administered. 

The  figures  for  19 16  show  some  improvement  over  those  of 
191 5,  but  the  gains  are  neither  extensive  nor  consistent  with  the 
progress  of  preceding  years.  Mercantile  stocks  continue  to  de- 
cline, but  the  loss  is  more  than  balanced  by  the  increased  assess- 
ment of  manufacturers'  stocks.  The  return  of  investments  by 
corporations  continues  to  be  quite  erratic,  while  the  gain  in  the 
return  of  money  is  more  than  offset  by  the  loss  in  credits,  a  situa- 
tion contrary  to  that  of  191 5.  In  view  of  the  remarkable  pros- 
perity of  the  people  of  Ohio  in  19 16  these  results,  like  those  of 
191 5,  must  be  regarded  as  evidence  of  the  very  unsatisfactory 
operation  of  the  general  property  tax. 

It  is  very  unfortunate,  from  the  point  of  view  of  tax  administra- 
tion, that  the  completely  centralized  assessing  machinery  estab- 
lished in  1913  was  not  allowed  to  stand  for  a  few  years.  The 
experiment  was  unique  and  its  results  would  have  been  most 
instructive.  In  a  single  year  they  demonstrated  the  gain  that 
could  be  made  in  the  assessment  of  many  classes  of  property.  Of 
greatest  interest  would  have  been  the  effect  of  this  drastic  admin- 
istration on  the  returns  of  intangibles  and  on  the  retention  of  such 
property  within  the  state.  After  two  years  a  marked  tendency  to 
migration  was  reported,^  and  this  would  doubtless  have  been 
accelerated  by  continued  drastic  administration.  The  experience 
of  the  years  1911-13  suggests  that  the  commission  could  not  have 
held  even  the  amounts  that  were  listed  in  19 14.  Nevertheless, 
continuance  of  the  experiment  would  soon  have  demonstrated 
either  the  extent  to  which  strong  central  administration  is  able  to 
restore  the  general  property  tax,  or  in  the  writer's  judgment,  the 
complete  failure  of  that  system  of  taxation. ^ 

1  Taxation  in  Ohio,  Report  of  the  Civic  League  of  Cleveland,  1915,  p.  17. 

^  The  legislature  of  19 17  passed  a  bill  exempting  mortgages  from  taxation 
upon  the  payment  of  a  registration  fee  of  one-half  of  one  per  cent  (107  Ohio 
Laws,  695).  This  bill  became  a  law  without  the  approval  of  the  governor,  and 
was  promptly  held  invalid  by  the  supreme  court.  Cf.  Cleveland  Plain  Dealer,  July 
i,  1917- 


So8 


THE  STATE  TAX  COMMISSION 


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THE  TAX  COMMISSION  OF  OHIO 


509 


APPENDIX  B,  CHAPTER  XV 

Analysis  of  Personal  Property  Returns  in  Omo,  1910-16 
(millions  of  dollars) 

/.  Tangibles 


Year 


Live 
stock 


Vehicles 


Watches 


Musical 
instru- 
ments 


Mer- 
chants' 
stocks 


Manu 

facturers' 

stocks 


Other 
tangi- 
bles 


Total 
tangi- 
bles 


1910. 
1911 ' 
1911* 
1911  ' 
1912* 
1912' 
1912' 
1913" 
1913* 

1913' 
19141 
1914* 

1915^ 
19IS* 
I9IS» 
1916* 
1916* 
1916* 


IIO.O 

141.8 

2-5 

144-3 
146.9 

2.7 
149.6 
158.1 

2.1 
160.2 
181. 2 

3-0 
184.2 

174-9 
2.9 

177-8 

178.S 
2.4 

180.9 


8.6 
16.9 

1-5 
18.4 
19-3 

1-4 
20.7 

23-9 

1-9 

2S-8 

41. 1 

3-8 

44-9 

Si-9 

4.2 

S6.i 

61.7 

5-7 
67.4 


16.1 


16.1 
20.7 


20.7 
20.9 


20.9 
26.2 


26.2 
27.0 


27.0 
25-7 


25-7 


36.4 
69.4 
82.8 

152.2 
74.0 
85-7 

159-7 
73-0 

106.7 

179.7 
84.1 

94-9 

179.0 

81. 1 

95-2 

176.3 

81.7 

85.8 

167.5 


20.2 

2l6.2 

236.4 

22.6 

245-5 
268.1 

23.1 
168.3 
191.4 

19.7 

274-7 
284.4 

19.6 
284.6 
294.2 

19.4 
328.4 
347-8 


98.9 
34-3 

133-2 
95-3 
23-4 

118.7 

97-7 
38.6 

136.3 


177.0 
265.6 

568.7 
285.1 

335.5 
620.6 
294.4 
279.0 
573-4 
453-1 
403-9 
857.0 

453-4 
410.3 

863.7 
466.2 
460.9 
927.1 


*  Returned  by  individuals  to  assessors. 

'  Returned  by  corporations  to  county  auditors,  or  county  assessors. 

»  Total  for  the  year. 


5IO 


THE  STATE  TAX  COMMISSION 


APPENDIX  B— continued 
II.  Intangibles 


Year 

Moneys 

Credits 

Property  lis- 
ted as  banker, 
broker  or 
jobber 

Bonds  and 
stocks 

Total 
intangibles 

III. 

All  other 
property 

IQIO 

59-5 
74-2 
20.0 
94-2 
96.7 
22.5 
119.2 

99-7 

13:0 

112. 7 

120.5 

29.5 
150.0 
1 14.4 

29.5 
143.9 
I37-I 

43-5 
180.6 

69.9 

91.2 

40.0 

131-2 

108.5 

39-7 
148.2 
108.2 

46.7 
134.9 
157-5 

62.4 
219.9 
159.6 

89.2 
248.8 
142.9 

62.3 
205.2 

•7 

-7 

1.4 

1.4 

1-3 

2.7 

1.4 
.1 

1-5 
1-3 

1-3 

1-3 

.1 

1.4 

-9 

.2 

I.I 

6-5 
20.6 

4-3 
24.9 
26.6 
12.7 
39-3 
31-9 

2.1 

34.0 
400.9  * 

46.4 

447-3 

83-1 

9.1 

92.2 

88.7 

45.7 

134-4 

151. 2 
186.7 

65.2 
251.9 
233.2 

86.2 

319.4 

241.2 

61.9 

303.1 
680.2 

138.3 
818.5 
358.4 
127.9 

485.3 
369.6 

151-7 
521.3 

39-7 

93-7 

183-5 

77.2 

I9II  1 

I9II  2 

I9II 3 

I9I2  ^ 

87.2 

I0I2  ^ 

221.3 

308.5 

89.2 

1 14.8 

1012 ' 

IQI2  1 

IQI72 

IQI^  3 

204.0 

1014,1 

9.9 
34-2 
44.1 

IQIA* 

IQIA^     

IQIC  1 

II. 4 

10ic2 

20.6 

IQIC  2 

30.0 
6.8 

IOI6  * 

IQl6^ 

19.9 
26.7 

IQI6' 

>  Returned  by  individuals  to  assessors. 

2  Returned  by  corporations  to  county  auditors,  or  county  assessors. 

'  Total  for  the  year. 

*  The  Rockefeller  assessment  of  $311,000,000  should  be  deducted  throughout. 


CHAPTER  XVI 

STATE  TAX  COMMISSIONS  IN  THE  EASTERN 
STATES  1 

I.  The  State  Tax  Commissioner  of  Connecticut 

The  tax  system  of  Connecticut  has  passed  through  much  the 
same  phases  of  development  that  have  been  experienced  in  the 
other  states;  though  in  certain  respects  the  traditional  attitude 
of  this  section  toward  governmental  functions  has  yielded  more 
slowly  to  the  pressure  of  new  needs  and  conditions.  The  tax 
system  of  colonial  Connecticut,  being  largely  borrowed  from 
Massachusetts,  naturally  placed  large  rehance  upon  property 
taxation,  with  the  difference  that  greater  use  was  made  of  assess- 
ment upon  estimated  income  instead  of  upon  selling  value.^  The 
increasing  revenue  needs  of  the  colony  led,  during  the  second  half 
of  the  seventeenth  century,  to  the  assessment  of  property  by 
commissioners  elected  in  each  town.  These  commissioners  then 
met  at  Hartford  for  the  inspection  and  equahzation  of  the  lists. 
Any  differences  among  them  were  referred  to  the  General  As- 
sembly. The  neglect  of  the  commissioners  so  imperilled  the  tax 
system  that  in  1692  special  agents  or  inspectors  were  provided  for 
the  task  of  inspecting  and  correcting  the  Hsts.  The  change 
worked  but  small  improvement,  and  early  in  the  eighteenth  cen- 
tury the  function  of  review  was  merged  with  that  of  assessment 
and  the  boards  of  Ksters  became  the  local  boards  of  review.  The 
counterpart  of  state  equahzation,  which  the  earUer  commis- 

1  In  Chapters  XVI,  XVII,  and  XVIII  brief  accounts  are  given  of  the  more 
recently  established  tax  commissions,  and  of  the  tax  departments  in  some  other 
states  which  have  of  late  been  given  more  extensive  powers.  For  convenience  the 
geographical  grouping  has  been  followed.  No  account  has  been  given  of  the  work 
of  the  Idaho  tax  commission,  which  was  abolished  in  1915;  nor  of  the  commissions 
in  Montana,  Arkansas,  and  North  Dakota,  because  of  the  lack  of  recent  informa- 
tion concerning  their  activities. 

^  Cf.  F.  R.  Jones,  History  of  Taxation  in  Connecticut,  16^6-1776. 

SIX 


512  THE  STATE  TAX  COMMISSION 

sioners  had  performed,  disappeared  with  the  commissioners.  The 
Hsters  continued  to  report  their  lists  to  the  General  Assembly 
until  1818,  and  in  the  event  of  failure  on  the  part  of  an  assessor  to 
report  his  list,  the  General  Assembly  doomed  the  town  and  fined 
the  delinquent  official.^ 

The  property  taxes  of  the  colonial  period  were  supplemented  in 
Connecticut  by  a  series  of  taxes  on  "  faculties,"  on  incomes,  and 
on  polls.  The  last  of  these  was  especially  heavy  and  the  inequity 
of  its  burden  led  to  increasing  agitation  for  a  change  in  the  tax 
system.2  The  new  constitution  of  181 8  introduced  the  principle 
of  taxing  property  on  selling  value  instead  of  on  income  and 
during  the  next  thirty  years  the  emphasis  shifted  from  burden- 
some poll  taxes  to  more  extensive  property  taxation.  The 
general  property  tax  was  introduced  in  1849.^ 

The  details  of  the  development  of  the  property  tax  are  not 
essential  to  the  present  purpose.  The  incoming  property  taxes 
were  locally  administered,  except  for  a  state  board  of  equalization 
which  had  been  provided  in  1820.*  For  the  first  year  this  board 
was  to  consist  of  one  commissioner  from  each  county,  who,  with 
the  state  treasurer  and  controller,  were  to  equalize  the  annual 
assessment  lists  of  the  several  towns.  The  following  year  the  local 
representatives  were  omitted  and  the  two  state  officers  originally 
named  continued  to  act  as  the  state  board  of  equalization  until 
the  addition  of  the  tax  commissioner  in  1901. 

This  board  of  equaHzation  does  not  appear  to  have  been  equal 
to  the  task  asked  of  it,  and  the  characteristic  tendencies  of  local 
assessment  became  more  pronounced  simultaneously  with  the 
extension  of  property  taxation.  So  rapidly  did  these  defects 
become  prominent  that  the  legislature  created,  in  1843,  one  of  the 
earliest  special  tax  commissions  in  the  United  States  for  the  pur- 
pose of  studying  the  operation  of  the  tax  system  and  reporting 
upon  necessary  changes.  The  commission  recommended  more 
complete  listing  of  property,  pubHcity  for  the  lists  returned,  and 

*  Cf.  Laws  of  Connecticut,  1774,  p.  129;  ibid.,  1796,  p.  275;  ibid.,  1807,  p.  757, 

*  Jones,  op.  cil.,  pp.  30,  31. 

'  Statutes  of  Connecticut,  1849,  PP-  604,  605. 

*  Laws  of  Connecticut,  1820,  ch.  52. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES       513 

abolition  of  the  state  board  of  equalization.^  These  recommenda- 
tions received  no  serious  attention  from  the  legislature.  Nat- 
urally, such  limited  proposals  would  have  produced  little  effect, 
had  they  been  accepted.  Evasion  and  undervaluation  continued 
and  during  the  second  half  of  the  nineteenth  century  three  more 
special  commissions  were  created  in  the  hope  of  attaining  a  satis- 
factory solution  to  the  problem  of  equitable  taxation  under  the 
uniform  rule.  In  addition,  various  attempts  had  been  made  to 
render  the  board  of  equalization  more  competent  to  deal  with  the 
problem  of  equahzation,  a  problem  which  had  become  much  more 
serious  with  the  vastly  increased  tax  burden  of  the  Civil  War.  In 
1866  the  board  had  been  reinforced  by  the  addition  of  one  com- 
missioner from  each  senatorial  district.  These  commissioners 
were  to  review  the  tax  lists  with  the  original  assessors,  and,  if 
necessary,  inspect  the  properties  themselves  and  report  to  the 
board  of  equalization.^  The  year  following  the  duties  of  a  com- 
missioner were  made  more  specific.  He  was  required,  with  a 
selectman,  to  inspect  a  sufficient  number  of  homesteads  in  each 
town,  and  not  less  than  ten  farms  situated  in  different  parts  of  the 
town,  together  with  enough  other  taxable  property  to  ascertain 
the  average  actual  cash  value  thereof;  and  then  prepare  a  table 
showing  the  percentage  of  fuU  value  used  by  the  assessor  for  each 
class  of  property.^  The  special  tax  commission  of  1868  commented 
upon  the  situation  as  follows :  * 

But  when  it  is  considered  that  the  same  pernicious  influence  of  self- 
interest,  which  had  produced  undervaluation  by  the  local  town  ofl&cers,  was 
still  left  in  full  operation  upon  the  action  of  every  member  of  these  boards, 
in  the  valuations  in  their  respective  local  districts,  it  is  not  strange  that  this 
intended  check  should  have  proved  to  be  of  very  little  practical  avail. 

This  analysis  of  the  outcome  proved  correct  and  the  provision  for 
commissioners  of  equalization  was  repealed  in  187 1. 

The  reports  of  the  special  tax  commissions  need  not  be  reviewed 
in  detail.  It  is  of  interest  in  this  connection  to  note,  however,  that 

*  Chapman,  op.  cit.,  pp.  27,  28,  reviews  this  report.  It  has  not  been  available  to 
the  writer. 

*  Laws  of  Connecticut,  1866,  ch.  83. 
»  Ihid.,  1867,  ch.  146. 

Report  of  the  Special  Commissioners  on  the  Subject  of  Taxation,  1868,  pp.  5,  6. 


514  THE  STATE  TAX  COMMISSION 

the  one  recommendation  which  was  presented  by  each  of  the 
three  commissions  was  for  the  appointment  of  a  state  tax  com- 
missioner, who  was  to  exercise  general  supervision  over  the  tax 
system.  Bills  for  this  purpose  failed  of  passage  on  more  than  one 
occasion  and  when  the  tax  commissioner  was  finally  provided,  in 
1 90 1,  the  particular  function  which  had  been  first  suggested  by 
the  commission  of  1867^  —  general  supervision  of  the  tax  system 
—  was  not  included,  nor  has  he  been  authorized  to  the  present  to 
exert  any  effective  influence  over  the  local  assessors. 

The  act  of  1901,  creating  the  office  of  state  tax  commissioner, 
provided  for  the  appointment  of  a  tax  commissioner  by  the  gover- 
nor for  a  term  of  four  years  at  a  salary  of  $3000.^  He  was  re- 
quired to  act  as  a  member  of  the  state  board  of  equalization,  to 
administer  the  corporation  taxes,  and  to  inquire  into  the  condi- 
tions of  local  assessment,  not  for  the  purpose  of  supervision  but 
rather  with  a  view  to  securing  materials  which  might  serve  to 
assist  the  state  board  of  equalization  in  its  action.  The  reports 
published  by  the  tax  commissioner  before  1908  contain  no 
material  that  would  assist  in  a  description  of  his  work;  the  follow- 
ing brief  account  of  his  activities  is  therefore  confined  to  the 
period  since  1908,  the  date  of  the  first  important  biennial  report. 

The  state  board  of  equalization  is  composed  of  the  treasurer, 

the  comptroller,  and  the  tax  commissioner.  The  latter  is  required 

to  report  annually  to  the  board  the  results  of  his  official  inquiries 

relative  to  tax  conditions  in  the  different  towns;  and  as  a  rule,  the 

only  data  upon  which  the  equaHzation  could  be  made  have  been 

those  compiled  for  this  purpose  by  the  commissioner.   These  data 

include  the  assessors'   statements  of  the  percentages  used  in 

assessing  manufacturing  plants  and  property  in  general;    the 

selectmen's  estimates  of  the  percentage  of  assessment;  the  town 

grand  lists  for  the  present  and  the  preceding  assessments;   and 

such  material  as  the  tax  commission  may  have  obtained  in  the 

course  of  local  visits  or  from  any  other  source.   No  attempt  has 

ever  been  made  to  compile,  in  any  systematic  way,  data  relating 

to  the  percentage  of  full  value  that  has  been  used  by  the  assessors , 

'  Report  of  the  Special  Commissioners  on  the  Subject  of  Taxation,  1868,  pp.  11,  isff. 
^  Laws  of  Connecticut,  1901,  ch.  62. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      515 

and  since  the  adoption,  in  191 5,  of  the  plan  of  apportioning  the 
state  tax  upon  local  expenditures  instead  of  upon  assessed  valua- 
tion, such  compilations  will  be  of  diminishing  importance.  Under 
this  law  the  town  lists  are  to  be  corrected  by  the  board  of  equali- 
zation only  when,  in  the  judgment  of  the  board,  such  action  may 
be  necessary  for  any  other  purpose,  such  as  the  distribution  of 
state  funds  in  aid  of  schools,  highways,  or  other  purposes.^ 

This  innovation  in  the  method  of  apportioning  the  state  tax  was 
the  result  of  the  tax  commissioner's  recommendations  on  the  sub- 
ject since  1910.^  His  arguments  were  strengthened  by  the  unsat- 
isfactory equalization  which  the  board  of  equalization  was  able  to 
make.  It  does  relieve  state  officials,  already  crowded  with  other 
duties,  from  the  thankless  task  of  an  equalization  more  or  less 
blindly  made  and  probably  will  promote  equality  of  distribution 
of  the  state  tax,  which  now  amounts  to  about  $1,750,000  annually. 

The  state  equalization  in  Connecticut  was  unsatisfactory,  not 
only  because  of  the  limited  sources  of  information  open  to  the 
board,  but  also  because  of  the  practice  of  equalizing  by  adding  a 
lump  sum  instead  of  deahng  with  classes  of  property.  Since  1897 
the  board  has  dealt  vigorously  with  the  local  returns  in  this 
respect,^  the  annual  additions  ranging  from  $91,000,000  to  $151,- 
000,000.  Under  the  circumstances,  however,  these  corrections 
could  have  had  little  influence  in  promoting  greater  equaHty  of 
assessments.  This  conclusion  is  substantiated  by  the  material 
compiled  by  the  Joint  Committee  on  Taxation  and  State  Finance 
of  the  Connecticut  Chamber  of  Commerce.  These  materials  are 
chiefly  for  the  year  191 5  and  represent  therefore  the  condition  of 
local  assessments  at  the  close  of  the  active  career  of  the  state 
board  of  equalization.'' 

The  most  serious  defect,  perhaps,  has  been  the  wholesale  escape 
of  personal  property  in  every  form.  The  experience  of  other  states 

^  Laws  of  Connecticut,  1915,  chs.  251  and  309. 

2  Connecticut  Tax  Commissioner,  Report,  1910,  p.  47;  ibid.,  191 2,  p.  69;  ibid., 
1914,  p.  94. 

'  Laws  of  Connecticut,  1897,  ch.  159,  authorized  the  board  to  raise  or  lower  as- 
sessments to  full  value. 

*  Report  of  the  Joint  Committee  on  Taxation  and  Finance  of  the  Connecticut 
Chamber  of  Commerce,  1916,  passim. 


5l6  THE  STATE  TAX  COMMISSION 

has  been  confirmed  in  an  interesting  way  by  the  relative  returns 
of  real  and  personal  property  in  Connecticut.  Everywhere  the 
relatively  wealthier  districts  have  succeeded  in  preventing  the 
larger  proportion  of  their  personalty  from  reaching  the  tax  rolls. 
In  191 5  the  two  counties  which  ranked,  respectively,  sixth  and 
last  in  density  of  population  ranked  highest  in  the  proportion  of 
personalty  to  total  assessment.  The  county  with  the  greatest 
density  of  population  was  next  to  the  last  in  the  proportion  of 
personalty  to  total  assessment.  For  the  state  as  a  whole  per- 
sonalty was  less  than  16.3  per  cent  of  the  total  assessment,  and  of 
the  personalty  returned,  three-fourths  was  listed  under  three 
classes  —  "  goods  and  materials  of  manufacturers,"  "  goods  and 
merchandise  of  merchants  and  traders,"  and  "  automobiles." 
The  last  of  these  classes  was  very  unevenly  assessed  over  the 
state,  average  assessed  values  ranging  from  $368  to  $649  among 
counties  and  from  $101  to  $830  among  towns.  The  special  tax 
commission  of  191 5  reported  that  25  per  cent  of  the  motor 
vehicles  registered  with  the  secretary  of  state  were  not  even 
listed  on  any  tax  roll  in  the  state.  ^ 

Similar  discrepancies  were  shown  to  exist  throughout  the  list  of 
classes  of  property,  both  tangible  and  intangible.  They  are  evi- 
dence not  only  of  the  natural  deficiencies  of  the  general  property 
tax  but  quite  as  much  of  the  weakness  of  the  administrative 
system  in  Connecticut.  Nowhere  have  state  tax  commissions  been 
able  to  transform  the  general  property  tax  completely,  though 
with  vigorous  exercise  of  reasonably  ample  administrative  powers 
the  assessment  of  real  estate  and  of  some  forms  of  personal  prop- 
erty has  been  rendered  fairly  uniform.  The  nonuniformity  of 
property  assessments  in  Connecticut  has  been  intensified  by  the  ab- 
sence of  adequate  powers  of  central  supervision  and  equalization. 

The  efifect  upon  local  assessments  of  the  new  plan  of  distribut- 
ing the  state  tax  remains  to  be  seen.  It  has  been  frequently 
pointed  out  above,  however,  that  the  state  tax  has  been  by  no 
means  the  only  cause  of  irregularities  in  the  local  assessment,  and 
there  appears  to  be  no  sufiicient  reason  for  beheving  that  the 
local  ofi&cials  in  Connecticut  will  assess  uniformly  for  county  and 
'  Report  of  the  Special  Tax  Commission  of  Connecticut,  191 7,  p.  30. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      517 

local  taxation  without  some  sort  of  central  guidance  and  oversight, 
and  possibly,  stronger  corrective  powers. 

The  recent  Connecticut  results  confirm  outside  experience  also 
with  regard  to  the  assessment  of  intangibles  at  a  low  flat  rate. 
Such  a  tax,  at  the  rate  of  four  mills  on  the  dollar,  has  been  im- 
posed upon  choses  in  action  since  1889.^  Owners  of  such  property 
have  had  the  option  of  listing  them  for  local  taxation  at  the  local 
rates  or  of  registering  them  with  the  state  treasurer  and  paying 
the  lower  flat  rate.  For  the  year  191 5  the  total  amount  registered 
with  the  treasurer  was  $105,745,000,  and  with  the  local  assessors 
$11,402,000.  There  is  no  central  supervision  of  either  of  these 
returns  and  the  listing  of  this  property  is  a  voluntary  act,  except 
in  so  far  as  the  assessor  may  use  his  right  of  arbitrary  assessment. 
The  joint  special  committee  commented  upon  the  situation  as 
follows :  ^ 

It  is  hardly  conceivable  that  in  the  thrifty  state  of  Connecticut  there  are 
seven  towns  in  which  there  is  no  ownership  of  taxable  bonds,  choses  in  action, 
money,  or  deposits,  or  in  which  all  such  property  is  hsted  for  the  owners  by 
brokers  in  other  towns.  It  is  perhaps  conceivable  that  in  this  same  thrifty 
state  there  are  towns  in  which  the  total  amount  of  taxable  intangible  prop- 
erty amounts  to  $50,  $62.66,  and  $95,  respectively.  If  conceivable,  this  is 
at  least  highly  improbable.  It  is  equally  improbable  that  there  are  five 
other  towns  in  each  of  which  the  aggregate  of  taxable  intangible  property 
amounts  to  $500  or  less.  It  is  certainly  not  to  be  beUeved  that  there  are 
33  towns  in  the  state  of  Connecticut,  out  of  a  total  of  168  towns,  in  no  one 
of  which  the  total  value  of  taxable  intangible  property  amounts  to  $5,000. 

Finally,  the  effect  of  the  absence  of  central  supervision  is  to  be 
seen  in  the  loose  and  careless  way  in  which  the  local  officials  have 
compiled  their  reports  and  kept  their  records.  The  practice  of 
returning  property,  especially  that  belonging  to  corporations, 
under  the  wrong  classification  has  made  the  grand  Hsts  as  pub- 
lished by  the  tax  commissioner  practically  useless.^  It  is  needless 
to  point  out  that  this  practice  greatly  favors  evasion  and  under- 
valuation, while  it  makes  careful  equalization  upon  the  basis  of 
these  returns  wholly  impossible, 

^  Laws  of  Connecticut,  1889,  ch.  248.  The  rate  was  2  mills  until  1897,  when  it 
was  increased  to  4  mills,  Laws,  1897,  ch.  216. 

^  Report  of  the  Joint  Committee  on  Taxation  and  State  Finance  to  the  Connecticut 
Chamber  of  Commerce,  1917,  p.  37. 

'  Ibid.,  pp.  58-60. 


5l8  THE  STATE  TAX  COMMISSION 

The  system  of  corporation  taxes  in  Connecticut  has  recently 
been  ahnost  entirely  recast,  and  with  this  change  the  tax  com- 
missioner's duties  have  naturally  been  materially  modified.  The 
transition  came  in  191 5  as  the  result  of  the  recommendations  of 
the  special  commission  on  the  taxation  of  corporations,  in  its 
report  of  1913.^  The  structure  and  operation  of  the  earHer  system 
of  corporation  taxes  are  so  thoroughly  described  in  that  report 
that  it  is  unnecessary  to  dwell  upon  those  topics  here.  The  new 
system,  together  with  the  tax  commissioner's  duties  in  connection 
therewith,  will  be  briefly  outlined. 

The  special  commission  of  19 13  had  recommended  the  intro- 
duction of  gross  earnings  taxes  for  all  pubHc  service  corporations. 
This  plan  was  adopted  in  19 13  for  telegraph,  telephone,  express 
and  car  companies;^  and  in  1915  for  railroads,  street  railways, 
water,  gas,  electric  and  power  companies.'  The  determination  of 
the  taxable  gross  earnings  is  left  with  the  state  board  of  equaUza- 
tion,  of  which  the  tax  conmiissioner  is  the  most  active  member  in 
tax  administration.  The  board  has  been  sustained  by  the  courts 
in  ruHng  that  taxable  gross  earnings  include  the  income  from  all 
operations,  whether  from  the  principal  business  or  from  any  sub- 
sidiary business  conducted  by  the  company,  without  deduction 
for  operating  expenses,  taxes,  or  bad  debts.^ 

The  act  of  191 5  introduced  a  new  method  of  taxing  miscellane- 
ous business  corporations,  which  had  hitherto  been  taxed  on  their 
property  as  assessed  by  the  local  assessors,  while  their  stocks  had 
been  exempt  to  the  holders.  The  new  law  imposed  a  tax  of  2  per 
cent  on  the  net  income  of  such  corporations  as  were  subject  to 
taxation  under  the  federal  income  tax.  The  Connecticut  law 
adopted  the  terms  and  requirements  of  the  federal  law,  and  pro- 
vided for  the  use  of  the  reports  made  to  the  internal  revenue  ofiice 
for  the  assessment  of  the  tax.  This  arrangement  simplifies  greatly 
the  administration  of  the  tax,  and  makes  possible  the  collection 
of  about  $1,600,000  of  revenue  at  an  annual  expense  to  the  state 
of  about  $3000.    The  tax  commissioner  suggests  the  extension  of 

*  Report  of  the  Special  Commission  on  Taxation  of  Corporations,  191 3. 
^  Laws  of  Connecticut,  1913,  ch.  188. 

*  Ibid.,  1915,  ch.  150.  ■»  90  Conn.  452. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      519 

this  law  to  individual  and  partnership  concerns  in  the  same  fields 
of  business  as  the  corporations  subject  to  the  act.^ 

The  Connecticut  inheritance  tax  dates  to  1889  but  until  1915 
its  administration  was  wholly  a  local  matter.^  Each  of  the  one 
hundred  and  thirteen  probate  judges  in  the  state  was  entirely 
independent  in  his  construction  and  application  of  the  successive 
inheritance  tax  laws,  subject  only  to  the  few  supreme  court 
decisions  and  to  an  order  from  the  state  treasurer  for  a  new 
appraisal  in  case  the  return  were  unsatisfactory  to  him.  This  was 
only  a  check  against  excessively  low  valuations,  and  in  conse- 
quence the  history  of  the  law  is  a  record  of  misunderstanding, 
great  divergence  of  interpretation,  and  serious  loss  of  revenue  to 
the  state.^  Under  the  law  of  191 5  a  copy  of  the  appraisal  of  every 
estate  in  excess  of  $500  must  be  filed  with  the  tax  commissioner. 
He  may  ask  for  a  reappraisal,  and  he  may  object  to  the  revalua- 
tion before  the  court,  which  is  empowered  to  correct  the  inven- 
tory. He  may  also  call  for  a  statement  of  the  taxes  calculated  by 
the  probate  court  to  be  due  upon  any  estate.* 

Although  the  Connecticut  tax  commissioner  has  possessed  no 
supervisory  authority  over  the  local  tax  oflScials,  he  has  been  in  a 
position  to  observe  their  conduct  and  to  form  reliable  estimates  of 
their  general  attitude  toward  their  work.  The  drift  of  his  observa- 
tions along  this  line  has  been  discouraging.  For  instance,  in  1909 
the  annual  election  of  the  local  board  of  assessors  was  discon- 
tinued in  favor  of  a  three-year  term,  with  election  of  one  assessor 
each  year.^  Towns  selecting  assessors  under  special  charter  pro- 
visions were  not  included.  The  tax  commissioner  wrote  in  1910 
that  the  assessors'  work  showed  "  very  great  improvement."  It 
was  anticipated  that  with  a  three-year  term  the  assessor's  interest 
would  be  sustained  throughout  the  year  and  would  lead  him  to 
collect  useful  data  on  the  valuation  of  property  in  and  out  of  the 
statutory  assessment  period.®    But  these  not  unreasonably  high 

'  Connecticut  Tax  Commissioner,  Report,  1916,  p.  64. 

*  Laws  of  Connecticut,  1889,  ch.  i8o. 

'  Connecticut  Tax  Commissioner,  Report,  19 14,  pp.  66-70. 

*  Laws  of  Connecticut,  1915,  ch.  332. 

*  Ibid.,  1909,  ch.  173. 

'  Connecticut  Tax  Commissioner,  Report,  1910,  p.  8. 


520  THE  STATE  TAX  COMMISSION 

hopes  have  been  shattered.  While  insisting  upon  the  benefits  to 
be  derived  from  the  longer  term,  the  commissioner  reported  in 
191 2  that  in  many  towns  conditions  remained  about  as  before.^ 
Two  years  later  the  majority  of  assessors  were  said  to  be  copying 
old  hsts,  accepting  owners'  valuations,  failing  to  view  property, 
and  neglecting  the  law  at  various  other  points.^  In  1916  the 
following  dejected  statement  was  made :  ^ 

There  is  no  particular  change  in  the  manner  or  method  of  work  of  the 
local  tax  officials  in  the  different  towns.  There  continues  to  be  a  wide  varia- 
tion in  efficiency  and  interest,  and  the  laws  in  too  many  instances  are  ad- 
ministered by  the  force  of  inertia  rather  than  by  the  incisive  effort  and 
appUcation  of  the  tax  officials.  There  is  no  evidence  of  a  supervisory  author- 
ity, and  each  official  performs  official  acts  in  accordance  with  his  own  notion 
and  energy. 

The  longer  term  of  ofl&ce,  in  itself,  has  not  sufl&ced  to  stimulate  the 
great  mass  of  assessors  into  keener  interest  than  their  predecessors 
had  experienced.  Nothing  short  of  the  control  which  effective 
state  supervision  means  can  bring  this  inspiration  to  them. 

The  active  legislature  of  191 5  adopted  another  of  the  tax  com- 
missioner's recommendations  looking  toward  more  effective 
financial  administration.  This  was  the  estabhshment  of  a  state 
board  of  finance,  to  consist  of  three  citizens  appointed  by  the 
governor  for  a  six-year  term,  and  the  treasurer,  comptroller  and 
tax  commissioner.*  This  board  is  to  receive  the  various  depart- 
mental estunates  of  revenue  and  expenditure,  hold  hearings  upon 
them,  and  report  their  findings  at  the  next  session  of  the  General 
Assembly.  In  addition,  the  law  provided  a  joint  committee  on 
appropriations,  to  consist  of  two  senators  and  five  representatives. 
This  committee  and  the  board  of  finance  are  to  hold  joint  meet- 
ings during  the  legislative  session  and  consider  all  bills  for  the 
appropriation  of  money.  Such  bills  go  automatically  to  this  joint 
body  unless  the  legislature  suspends  this  order  by  two-thirds 
vote.  The  board  of  finance  and  the  joint  legislative  committee 
are  authorized  to  originate  bills.  As  a  step  in  the  development  of 
state  budgetary  procedure  this  plan  promises  well.    It  suggests 

1  Connecticut  Tax  Commissioner,  Report,  191 2,  pp.  13,  14. 

*  Ibid.,  1914,  pp.  13,  14.  *  Ibid.,  1916,  p.  26. 

*  Laws  of  Connecticut,  1915,  ch.  302. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      52 1 

the  next  line  of  development  in  American  financial  administra- 
tion, which  must  surely  be  the  extension  of  some  degree  of  central 
control  over  the  state  and  local  expenditures  in  order  that  a 
better  coordination  of  outgo  and  income  may  be  secured. 

From  this  brief  survey  of  the  Connecticut  tax  commissioner's 
activities  it  may  be  seen  that  this  official  has  been  a  vigorous  and 
progressive  force  in  the  state,  developing  sentiment  and  molding 
legislation  in  the  direction  of  more  effective  tax  administration. 
The  comparison  of  his  official  recommendations  through  the 
biennial  reports  with  the  record  of  tax  legislation  reveals  the 
remarkable  degree  of  leadership  which  the  Connecticut  tax  com- 
missioner has  attained  in  financial  matters.  In  many  respects  this 
legislation  is  fully  as  progressive  as  that  found  elsewhere,  while  in 
more  than  one  instance  Connecticut  has  become  the  resourceful 
pioneer,  undertaking  new  ways  of  meeting  old  problems,  as  in  the 
plan  of  apportionment,  or  striking  out  resolutely  into  new  paths 
for  the  attainment  of  new  financial  ends,  as  in  the  creation  of  the 
board  of  finance.  In  one  respect,  however,  Connecticut's  tax  law 
is  singularly  deficient,  and  the  tax  commissioner  has  not  urged 
this  reform  as  insistently  as  he  has  other  matters.  This  defect  is, 
of  course,  the  lack  of  central  supervision  over  the  local  assessment; 
and  the  reason  for  it  is  clearly  enough  the  New  England  senti- 
ment for  local  autonomy.  This  sentiment  has  been  giving  way  in 
other  New  England  states,  but  in  Connecticut  it  is  still  a  sufiS- 
ciently  powerful  factor  to  check  legislation  and  to  prevent  a 
tactful  tax  commissioner  from  making  more  than  casual  reference 
to  the  need  of  greater  supervision.  Connecticut  needs  to  study 
the  developments  in  tax  administration  in  other  New  England 
states  and  elsewhere,  and  to  consider  wherein  those  developments 
may  contribute  to  the  improvement  of  her  own  tax  system. 

2.  The  State  Tax  Commission  of  New  Hampshire  * 

The  development  of  centralized  tax  administration  came  much 
more  slowly  in  New  Hampshire  than  in  the  neighboring  state  of 
Massachusetts.    The  general  structure  of  the  tax  system  was 

1  M.  H.  Robinson's  A  History  of  Taxation  in  New  Hampshire  contains  much 
interesting  historical  material 


522  THE  STATE  TAX  COMMISSION 

established  a  century  or  more  ago  and  but  few  changes  have  since 
been  made.^  This  system  was,  of  course,  the  general  property  tax. 
The  assessment  was  made  originally  by  the  selectmen  and  later 
by  locally  chosen  assessors,  or  listers.  No  provision  was  made  for 
the  equalization  of  individual  assessments,  and  the  only  means 
of  relief  was  in  the  appeal  of  the  individual  taxpayer  to  the  courts. 
The  constitution  required  a  reappraisal  of  real  estate  at  least  as 
often  as  once  in  five  years.  From  1775  to  1878  these  periodic 
reappraisals  were  equalized  by  a  committee  of  the  legislature, 
though  the  results  were  apparently  of  Uttle  value  as  contributing 
to  greater  equality  of  tax  burden.  A  special  tax  commission 
reported  on  the  subject  in  1878,  and  expressed  the  conviction  that 
a  state  board  for  the  equalization  of  values  was  a  pressing  need  of 
the  state.  It  added,  "  ...  if  the  new  sources  of  revenue  recom- 
mended by  the  commission  are  adopted,  a  Board  of  Equahzation 
will  become  a  necessity."  ^ 

Upon  the  recommendation  of  this  commission,  state  and  county 
equalization  was  introduced  in  1878.^  The  county  commissioners 
of  each  county  were  required  to  equalize  the  returns  of  real  estate 
after  each  quinquennial  appraisal,  and  the  chairman  of  each  board 
(or  any  member)  was  to  meet  with  the  state  board  of  equaliza- 
tion. This  board  was  composed  of  five  members  appointed  by  the 
supreme  court  and  commissioned  by  the  governor  for  a  term  of 
two  years.  The  act  of  1878  suggested  that  the  state  board  of 
equalization  exercise  general  supervision  over  local  tax  ofl&cials, 
but  the  real  meaning  of  this  term  was  not  then  appreciated  and  its 
possibilities  were  not  realized.  The  county  representatives  were 
withdrawn  from  active  participation  in  the  state  equalization  in 
1891,  and  were  required  only  to  submit  such  data  on  the  subject 
of  local  assessment  and  equalization  as  might  be  of  assistance  to 
the  state  board.*  This  board  assumed  also  in  1878  the  function  of 
railroad  assessment  which  had  been  performed  since  1843  by  the 
justices  of  the  supreme  court;  ^  it  began  the  appraisal  of  the  lines 

^  W.  B.  Fellows,  "  Taxation  in  New  Hampshire,"  Proceedings  of  the  National  Tax 
Conference,  1915,  pp.  177-187. 

^  Report  of  the  New  Hampshire  Tax  Commission  of  1S78,  p.  39. 

'  Laws  of  New  Hampshire,  1878,  ch.  73. 

*  Statutes  of  New  Hampshire,  1891,  ch.  63.  '  Ibid.,  1843,  ch.  39. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      523 

and  equipment  of  the  telegraph  companies  ^  and  the  oversight  of 
the  returns  of  express  companies. ^  Five  years  later  the  assessment 
of  telephone  companies  was  added. ^ 

This  typical  administrative  organization  of  the  period  operated 
even  less  satisfactorily  in  New  Hampshire  than  in  many  other 
states  because  of  the  strong  influence  of  the  idea  of  local  auton- 
omy. The  growing  realization  of  the  inequitable  conditions  which 
prevailed  led  finally  to  the  creation  of  a  special  tax  commission  in 
1907.  Its  report,  pubhshed  in  1908,  presented  a  careful  survey  of 
the  state's  tax  system  with  a  comprehensive  plan  for  adminis- 
trative reorganization.*  The  conditions  found  by  the  special 
commission  to  exist  may  be  briefly  summarized. 

The  condition  of  real  estate  assessment  was  tested  by  the  sales 
method,  for  which  about  three  thousand  usable  sales  had  been 
collected.  The  average  ratio  of  assessed  to  true  value,  as  shown 
by  these  sales,  was  72  per  cent  in  1907  and  76  per  cent  in  1908. 
But  in  1907  there  were  four  counties  below  this  average  and  the 
range  was  from  56  per  cent  to  86  per  cent.  In  1908  the  range  was 
from  60  per  cent  to  89  per  cent.  Though  the  law  at  that  time 
required  a  distinct  assessment  of  separate  parcels,  the  assessors 
usually  made  a  lump  assessment  of  all  of  the  real  estate  belonging 
to  one  owner.  Many  of  the  sales  collected  by  the  special  tax  com- 
mission had  to  be  rejected  because  the  assessors  could  not  find 
on  their  books  the  property  described  in  the  deeds.  The  wild 
lands  and  timber  lands  were  rarely  surveyed  by  the  assessors. 
Using  the  survey  made  by  the  United  States  Forestry  Service  in 
part  as  the  basis,  the  wild  lands  of  the  state  were  found  to  be 
assessed  at  one-fourth  to  one-third  of  full  value. 

Live  stock  was  said  to  be  undervalued  35  per  cent  to  45  per  cent, 
industrial  corporations  were  estimated  to  be  assessed  at  34  per 
cent  of  full  value,  and  not  above  one-tenth  of  the  moneys  and 
securities  were  found  to  be  taxed.  The  board  of  equalization  had 
followed  no  method  whatever  in  assessing  the  corporations  under 
its  jurisdiction,  but  under  the  leadership  of  the  state  courts  it  had 

'  Laws  of  New  Hampshire,  1878,  ch.  S4- 

2  Ibid.,  ch.  SI.  '  Ibid.,  1883,  ch.  no. 

*  Report  of  the  New  Hampshire  Tax  Commission,  1908. 


524  THE  STATE  TAX  COMMISSION 

made  such  allowances  as  seemed  proper  in  order  to  secure  approxi- 
mate equality  of  assessment  between  corporate  and  other  prop- 
erty. In  the  absence  both  of  adequate  means  of  investigating 
local  assessments  and  a  proper  method  of  corporate  valuation, 
the  unsatisfactory  character  of  the  results  is  apparent. 

The  act  for  the  creation  of  a  permanent  tax  commission  in  New 
Hampshire  was  passed  in  1911/  following  the  recommendation  on 
the  subject  advanced  by  the  special  tax  commission  of  1908.*  In 
its  final  form  the  bill  was  a  combination  of  two  bills  offered  by  the 
earlier  commission,  one  providing  for  the  tax  commission  and  the 
other  for  the  administration  of  the  corporation  taxes  by  the  tax 
commission.^  This  body  was  made  bipartizan  by  requiring  that 
one  member  be  chosen  from  the  leading  minority  party,  but  the 
law  also  required  that  all  three  appointees  should  be  persons 
known  to  possess  knowledge  of  the  subject  of  taxation.  The 
members  were  to  be  appointed  by  the  supreme  court  and  com- 
missioned by  the  governor.  The  court  was  to  designate  one 
member  as  chairman  and  another  as  secretary.  The  latter  is  the 
active  head  of  the  commission  and  is  required  to  maintain  regular 
ofl&ce  hours  in  the  state  house  throughout  the  year.  His  salary  is 
$3000  and  that  of  the  other  two  members  $2500.  The  regular 
term  of  office  is  six  years. 

The  act  of  191 1  abolished  the  state  board  of  equaHzation  and 
transferred  its  duties  to  the  tax  commission.  These  duties  in- 
cluded the  biennial  equalization  of  property  valuations  in  the 
several  towns  and  cities  and  the  assessment  of  the  public  service 
corporations.  In  addition,  and  most  significant  of  all  in  view  of 
the  strong  sentiment  for  local  self-goverrmient,  the  commission 
was  given  general  supervision  over  the  tax  system.  This  super- 
vision was  to  be  exercised  by  conferring  with,  advising,  and 
instructing  the  local  assessors;  by  issuing  orders  for  the  institu- 
tion of  proceedings  for  the  enforcement  of  laws;  and  by  collect- 
ing information  and  hearing  complaints.    Authority  was  also 

'  Laws  of  New  Hampshire,  1911,  ch.  169.    Cf.  A.  O.  Brown,  "  A  Tax  Commis- 
sion with  Power,"  National  Tax  Bulletin,  ii,  pp.  94  ff.,  January,  191 7. 
*  Report  of  the  New  Hampshire  Tax  Commission,  190S,  pp.  311-315. 
'  The  first  attempt  to  secure  a  tax  commission  failed,  in  1909.    Brown,  loc.  cit. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      525 

granted  in  these  appeal  cases  to  order  a  reassessment  whenever 
such  action  was  regarded  as  advisable  or  necessary. 

In  preparation  for  its  task  of  equalizing  the  assessment  of  191 2 
the  commission  spent  considerable  effort  in  impressing  upon  the 
local  assessors  the  desirabihty  and  importance  of  assessment  at 
full  value.  Written  instructions  to  this  effect  were  issued,  and 
visits  were  made  to  every  county  of  the  state.  This  preliminary 
educational  campaign  proved  to  be  of  small  influence  and  the 
commission  proceeded  to  a  vigorous  equalization,  the  details  of 
which  have  not  been  published.  This  equalization  was  made  on 
the  basis  of  material  collected  independently  of  the  local  assess- 
ment by  the  commission  and  by  the  railroad  companies,  the  object 
of  the  latter  being  the  prosecution  of  their  appeals  from  the 
increases  made  by  the  state  board  of  equalization  in  1909.  There 
was  no  general  use  of  the  sales  method,  though  some  evidence  was 
obtained  comparing  assessed  and  selling  values  of  real  estate. 
More  use  was  made  of  samphng.  The  real  estate  in  about  one 
hundred  towns  was  sampled  and  in  some  cases  at  least  these 
sample  appraisals  extended  to  Hve  stock,  manufacturing  prop- 
erty, and  stock  in  trade.  The  probate  records  afforded  evidence 
of  the  escape  of  mortgages  and  other  intangibles.  The  commis- 
sion concluded  that  on  the  average  the  state  was  assessed  at  about 
61  per  cent  of  true  value. ^  This  ratio  was  used  for  the  purpose  of 
equalizing  the  corporate  assessments  to  those  of  other  property, 
but  not  in  the  general  adjustment  of  local  assessments  in  191 2. 

In  this  year  only  $10,438,500  was  added  to  a  total  local  valuation 
of  $379,647,000,  so  that  there  was  clearly  no  thought  of  equaliz- 
ing assessments  up  to  full  value,  notwithstanding  the  instructions 
to  the  assessors  at  the  beginning  of  the  assessment  period.  Even 
this  small  amount  was  placed  on  the  tax  rolls  by  compromises 
which  completely  satisfied  no  one.^  The  commission's  activity  in 
equalization  has  somewhat  decreased  since  191 2.  In  1914  no 
additions  were  made  to  the  local  returns  because  no  evidence 
appeared  which  indicated  that  property  had  not  been  assessed  at 

1  New  Hampshire  Tax  Commission,  Report,  191 1,  Second  Edition,  pp.  34,  35. 
*  A.  O.  Brown,  "  A  Tax  Commission  with  Power,"  National  Tax  Bulletin,  ii, 
pp.  94-100.     January,  191 7. 


526  THE  STATE  TAX  COMMISSION 

full  value. ^  The  total  local  assessment  had  been  increased  from 
$263,074,000  in  191 1  to  $379,647,000  in  191 2,  and  the  amount 
added  by  the  tax  commission  brought  this  total  to  $390,086,000. 
By  1916  this  total  had  increased  to  $410,150,000.  The  lack  of 
evidence  must  have  been  due  to  a  diminished  ardor  in  the  search 
therefor,  since  the  commission's  addition  in  the  equalization  of 
191 2  did  not  overcome  the  undervaluation  which  its  own  calcula- 
tions had  shown  to  exist.  In  191 6  the  chairman  stated  that  the 
direction  and  equalization  of  a  general  reassessment  of  property 
was  the  most  important  task  then  confronting  that  body.* 
Despite  the  large  initial  increase  and  the  slow  but  steady  advance 
in  the  years  following,  many  forms  of  property  are  now  under- 
assessed. Merchandise  stocks,  reclaimed  farms,  and  summer 
resort  property  are  among  the  classes  in  greatest  need  of  atten- 
tion. The  returns  of  intangibles  are  naturally  not  satisfactory; 
this  situation,  together  with  the  whole  personal  property  schedule 
since  191 1,  is  discussed  below. ^ 

The  central  administration  of  railroad  taxes  began  in  1843 
with  a  law  which  required  the  railroad  companies  to  pay  a  tax  of 
one  per  cent  upon  the  value  of  that  part  of  their  capital  stock 
expended  within  the  state,  after  certification  by  the  justices  of 
the  superior  court."*  In  1867  this  capital  was  to  be  taxed  in  pro- 
portion to  the  taxation  of  other  property  in  the  various  towns  in 
which  the  roads  were  located.  The  justices  of  the  supreme  court 
were  to  determine  the  value  of  such  capital,  the  rates  of  taxation 
in  the  respective  towns,  and  the  amount  of  the  tax.^  This  law 
continued,  without  any  particular  methods  being  provided  whereby 
the  supreme  court  justices  were  to  fulfill  these  tasks,  until  1878. 
In  this  year  the  basis  of  railroad  taxation  was  made  the  road,  roll- 
ing stock,  and  equipment,  which  were  still  to  be  taxed  in  propor- 
tion to  the  other  property  in  the  several  towns  in  which  the  roads 

*  Personal  Letter  from  W.  B.  Fellows,  Secretary  to  the  New  Hampshire  Tax  Com- 
mission, June  28,  1915. 

*  A.  O.  Brown,  loc.  cit.  The  constitution  requires  a  general  reassessment  at 
least  once  in  five  years. 

'  Cf .  below,  pp.  530  £f. 

*  Statutes  of  New  Hampshire,  1843,  ch.  39. 
'  Ibid.,  1867,  ch.  57. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      527 

were  located.^  The  state  board  of  equalization  was  charged  with 
the  administration  of  this  act,  and  it  proceeded  to  use  in  general 
the  methods  employed  by  the  supreme  court  for  this  purpose. 
The  assessment  was  promptly  appealed  from,  and  the  supreme 
court  sustained  as  unconstitutional  that  portion  of  the  law  which 
required  taxation  at  the  average  rate  of  the  property  in  the  respec- 
tive towns  through  which  the  railroad  operated, ^  although  for 
eleven  years  this  tribunal  had  administered  the  earlier  law  con- 
taining this  provision.  The  board  of  equahzation  then  voted  to 
regard  the  tax  as  a  state  tax  and  to  apply  the  average  state 
rate.' 

This  was  a  singular  administrative  modification  of  the  statute 
but  the  board  of  equahzation  was  evidently  a  resourceful  body. 
This  quahty  appears  also  in  its  method  of  determining  the  aver- 
age rate.  The  rate  as  calculated  was  $1.44  per  $100  in  1880,  but 
because  of  the  local  undervaluation  the  rate  used  was  $1.25  per 
$100.  The  problem  of  ascertaining  by  any  independent  scien- 
tific investigation  the  degree  of  undervaluation  which  prevailed 
apparently  did  not  occur  to  the  board.  In  the  absence  of  a  clear 
statutory  definition  of  the  average  rate  of  taxation  the  board 
formulated  a  rule  which  was  employed  until  1909.  This  rule 
called  for  the  division  of  the  total  local  assessment,  the  insurance 
stock,  and  savings  bank  deposits  (which  were  subject  to  specific 
taxation),  into  the  total  of  local  taxes  plus  the  specific  taxes  on 
savings  deposits  and  insurance  stock.^  The  result  was  a  lower 
average  rate  than  would  have  been  obtained  by  the  exclusion  of 
the  classes  of  property  specifically  taxed.  This  rule  was  approved 
in  the  subsequent  tax  laws  and  in  various  court  decisions.  In 
1908  the  average  rate  as  the  board  applied  it  to  the  corporate 
assessments  was  $1.72  per  $100;  excluding  the  property  specifi- 
cally taxed,  it  would  have  been  $1.98  per  $100.^   The  following 

1  Laws  of  New  Hampshire,  1878,  ch.  62. 

^  60  New  Hampshire,  87. 

'  Cf.  Valuation  and  Taxation  of  the  State  of  New  Hampshire,  1906,  pp.  12  ff. 
This  rule  was  enacted  into  law  by  Laws  of  New  Hampshire,  1881,  ch.  122. 

''  Ibid.,  p.  13. 

*  Ibid.,  1908,  p.  6.  Cf.  Statutes  of  New  Hampshire,  ch.  64,  §  i  and  60  New 
Hampshire,  87;  70  New  Hampshire,  200.   It  was  also  approved  in  the  acts  provid- 


528  THE  STATE  TAX  COMMISSION 

year  these  classes  of  property  were  definitely  excluded,  and  the 
new  average  rate  rose  to  $2,138  per  $100.^  In  this  year  also  the 
board  made  a  material  advance  in  the  railroad  assessment,  total- 
ling some  $8,500,000.  These  increases  were  appealed  and  the 
data  on  the  condition  of  local  assessments  were  used  by  the  tax 
commission  in  its  equalization  of  191 2. 

The  special  tax  commission  of  1908  disagreed  on  the  question  of 
the  results  of  corporate  assessment  in  New  Hampshire.  The 
majority  of  this  commission  defended  the  results  of  the  state 
board  of  equalization  but  without  expressing  a  positive  opinion 
on  the  percentage  of  full  value  which  this  board  had  reached.^ 
The  minority  members  made  various  calculations  to  show  that 
corporate  property,  especially  that  of  railroads,  was  very  greatly 
undervalued  by  the  state  board.  The  total  assessment  of  $26,- 
569,000  for  1907  was  claimed  to  be  considerably  less  than  half  of 
the  true  value  of  the  railroad  property  of  the  state  at  that  time. 

The  methods  used  in  the  valuation  of  corporations  have  been  a 
combination  of  the  stock  and  bond  valuation  and  the  capitaliza- 
tion of  earnings,  modified  by  particular  circumstances  in  each 
case.  The  chairman  of  the  commission  wrote  that  security  values 
were  regarded  as  very  important,  although  all  of  the  evidence 
that  could  be  secured  was  considered.^  The  assessment  of  steam 
railroads  in  191 1  was  $34,437,000.  By  191 6  this  total  had 
increased  to  $39,796,000. 

The  principal  problem  in  the  adequate  taxation  of  other  pubKc 
service  corporations  is  that  of  securing  greater  uniformity  of 
assessment  through  a  further  extension  of  the  commission's 
jurisdiction.  The  results  of  central  assessment  have  been  satis- 
factory, but  the  legal  classification  of  companies  for  central  and 
local  assessment  is  anomalous.  Street  railway  companies  are 
centrally  assessed,  though  in  some  cases  the  plant  lies  entirely 
within  a  single  city.    On  the  other  hand,  light,  heat,  and  power 

ing  for  central  assessment  of  express  and  car  companies,  Laws  of  New  Hampshire, 
1907,  chs.  81  and  91. 

^  Laws  of  New  Hampshire,  1909,  ch.  66. 

*  Report  of  the  New  Hampshire  Tax  Commission,  1908,  pp.  99,  1 21-140. 

'  Personal  Letter  from  A.  O.  Brown,  Chairman  of  the  New  Hampshire  Tax  Com- 
mission, August  7,  1915. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      529 

companies  are  locally  assessed,  though  the  equipment  and  busi- 
ness operations  of  these  concerns  often  extend  throughout  several 
cities  and  towns.  The  piecemeal  assessment  which  of  necessity  is 
made  by  the  local  assessors  in  such  cases  is  utterly  inadequate.^ 

In  its  first  annual  report  the  commission  announced  a  positive 
policy  of  law  enforcement  under  its  powers  of  supervision ,2  but 
the  practical  difficulties  in  the  way  of  such  a  program  had  not 
been  fully  anticipated.  They  were  stated  by  one  member  of  the 
commission  in  his  remarks  at  the  National  Tax  Conference  in 
1912: * 

We  say  to  the  selectmen  of  a  town,  "  Reassess  the  property."  They 
reply,  "  We  will  reassess,  but  we  will  reassess  at  the  original  figures.  We 
swore  we  had  assessed  at  full  and  true  value  last  April,  and  we  are  not  going 
to  swear  to  anything  else  now." 

The  speaker  expressed  great  respect  for  the  difficulties  of  proving 
the  assessors  guilty  of  "  willful  intent,"  and  as  long  as  the  com- 
mission was  restricted  to  the  slow  and  uncertain  remedy  of  pros- 
ecution before  the  courts,  the  authority  to  order  reassessments 
offered  but  small  advantage.  This  defect  of  the  New  Hamsphire 
law  was  fortunately  removed  in  1913  by  an  amendment  which 
authorized  the  tax  commission  to  appoint  special  assessors  to  per- 
form the  reassessment,  in  case  the  local  assessors  refused  to  do  it 
or  in  the  event  that  the  local  reassessment  proved  unsatisfactory.'' 
As  in  other  states,  the  existence  of  this  authority  has  largely 
obviated,  the  necessity  for  its  use,  so  far  as  the  intentions  of 
the  assessors  are  concerned.  The  following  account  of  the  com- 
mission's procedure  indicates  the  relation  in  which  the  central 
administrative  head  stands  to  the  local  ofiicials  with  respect  to 
supervision  of  their  work :  * 

.  .  .  there  has  been  a  friendly  cooperation  between  the  local  assessors  and 
the  members  of  the  tax  commission  in  efforts  to  make  aU  assessments  ac- 

^  A.  O.  Brown,  loc.  cit.,  p.  94. 

*  New  Hampshire  Tax  Commission,  Report,  191 1,  Second  Edition,  ch.  3. 

'  W.  B.  Fellows,  "  Problems  encountered  in  Establishing  Central  Supervision 
in  a  State  under  a  Town  Form  of  Government,"  Proceedings  of  the  National  Tax 
Conference,  1912,  p.  470. 

*  Laws  of  New  Hampshire,  1913,  ch.  223. 

'  W.  B.  Fellows,  "  Taxation  in  New  Hampshire,"  ibid.,  1915,  pp.  177,  178. 


530  THE  STATE  TAX  COMMISSION 

cording  to  law.  A  few  reassessments  have  been  made  under  formal  orders, 
but  the  most  of  the  work  is  done  through  consultations  and  advice.  In 
rare  cases  veiled  threats  are  required,  but  on  the  whole  it  is  found  that  the 
local  assessors  are  as  ready  to  comply  with  the  law  as  are  other  people. 

Meetings  are  held  with  them  at  different  places  in  the  state.  They  are 
made  acquainted  with  the  statutes  and  decisions  of  the  coiut,  as  well  as  any 
facts  which  have  come  to  the  attention  of  the  commission.  A  constant  cor- 
respondence is  maintained,  and  two  things  are  kept  ever  before  them:  first, 
appraisal  at  fuU  and  true  value;  second,  the  taxes  raised  must  be  paid,  and 
the  evasion  of  one  person  unjustly  adds  to  the  burden  of  others. 

In  the  same  paper  figures  were  presented  to  show  that  in  1914 
real  estate  had  increased  52  per  cent  over  the  assessment  of  191 1, 
manufacturing  estabUshments  69  per  cent,  and  taxable  intan- 
gibles 81  per  cent.  The  total  valuation  of  the  state  had  increased 
55  per  cent.  But  these  attractive  percentages,  while  suggestive  of 
improvement,  are  far  from  conclusive  evidence  that  the  state  was 
assessed  at  full  value  in  1914,  and  the  gains  here  registered  hardly 
excuse  the  commission  from  making  an  eflfort  to  list,  or  to  discover, 
sequestered  property. 

This  conclusion  will  be  clear  from  an  examination  of  the  details 
of  the  tax  duplicate.  The  assessment  of  real  estate  has  increased 
from  $178,900,000  in  191 1  to  $281,900,000  in  1916,  or  58.1  per 
cent.  Accepting  the  estimate  of  the  special  commission  of  1908 
to  the  effect  that  real  estate  was  then  assessed  at  about  75  per 
cent  of  full  value,  this  increase  allows  for  some  improvement  in 
the  basis  of  valuation  in  the  face  of  rising  real  estate  values. 
Nothing  definite  can  be  said  of  the  equality  of  real  estate  assess- 
ments as  equahzed  by  the  commission  in  191 2,  but  it  is  clear  that 
by  191 6  certain  inequalities  had  appeared. 

The  results  of  the  assessment  of  personal  property  are  pre- 
sented below.  ^  It  is  not  possible  to  check  these  figures  from 
independent  sources.  The  census  valuation  of  live  stock  in  19 10 
was  $11,900,000.  The  assessment  of  this  class  of  property  has 
evidently  been  on  a  fairly  satisfactory  basis,  but  as  in  the  case  of 
real  estate  it  is  impossible  to  speak  definitely  on  the  question  of 
uniformity  of  assessment. 

The  Hsting  of  intangibles  appears  to  be  in  the  condition  that  is 
to  be  expected  under  the  uniform  rule.  The  difficulty  of  securing  a 

'  Cf.  below,  p.  554. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES       53  I 

proper  return  of  this  form  of  property  was  realized  long  ago, 
under  the  regime  of  the  state  board  of  equaUzation.  In  1879  the 
law  requiring  a  sworn  inventory  of  possessions  was  passed.'  At 
this  time  about  $20,000,000  of  money  on  hand  and  at  interest 
was  returned.  By  1894  the  amount  of  moneys  returned  had 
fallen  to  about  $6,000,000,  and  the  board  reported  that  in  many  of 
the  cities  the  law  requiring  a  return  of  moneys  was  treated  as  a 
dead  letter.  One  city  made  absolutely  no  return  of  moneys  in  this 
year.2  At  various  times  the  state  board  of  equaHzation  urged 
either  more  vigorous  administration  or  else  the  repeal  of  the  law 
taxing  moneys  at  the  same  rate  as  other  property.  The  state  tax 
commission  revived  the  law  requiring  a  sworn  inventory,  and  by 
1 913  it  seemed  to  be  on  the  way  to  a  fair  increase  in  the  amount  of 
intangibles  listed.  This  increase,  which  consisted  almost  wholly 
of  moneys,  could  not  be  retained  on  the  tax  roll,  and  the  amount 
returned  has  since  declined  without  interruption. 

The  explanation  for  this  decline  which  the  chairman  offered  in 
1 91 6  was  that  the  shrinkage  at  this  point  represented  the  transfer 
of  holdings  of  money  and  of  taxable  bonds  into  investments  in 
stocks,  which  had  been  exempted  by  court  ruling.  These  ten- 
dencies have  doubtless  been  in  operation  since  191 2,  but  they  do 
not  furnish  an  altogether  convincing  explanation  for  the  decline 
in  the  assessment  of  moneys.  The  volume  of  deposits  in  the  com- 
mercial banks  of  the  state  has  steadily  increased  and  the  decrease 
in  the  assessment  of  public  bonds  has  been  far  less  than  that  of 
moneys.  In  spite  of  the  increase  of  investments  in  exempt  securi- 
ties, the  volume  of  moneys  still  in  taxable  form  in  the  state  has 
been  on  the  increase.  The  truth  is  that  the  present  administra- 
tive organization  is  no  match  for  the  taxpayer  while  the  latter  is 
sheltered  behind  the  uniform  rule  and  the  taxation  of  intangibles 
at  excessively  high  rates. 

The  item  "  moneys  "  does  not  include  interest  bearing  deposits 
in  savings  banks.  Since  1864  these  deposits  have  been  exempt  to 
the  owners,  and  in  lieu  thereof  a  tax  of  $.75  per  $100  has  been 
collected  from  the  banks.'   Deducting  certain  exempt  assets  the 

^  Laws  of  New  Hampshire,  1879,  ch.  46. 

*  Valuation  and  Taxation  in  the  State  of  New  Hampshire,  1894,  p.  24. 

'  Laws  of  New  Hampshire,  1864,  ch.  2873. 


532  THE  STATE  TAX  COMMISSION 

true  tax  rate  is  about  $.60  on  the  $100.  This  law,  in  which  a 
fundamental  principle  of  tax  reform  is  tacitly  recognized,  has 
operated  to  the  satisfaction  of  all  and  has  never  been  brought  to  a 
judicial  test.  It  apparently  violates  the  uniform  rule  of  the  con- 
stitution, but  as  a  supreme  court  justice  once  said,  it  rests  on 
pecuHar  grounds  of  public  poHcy  and  appears  to  have  universal 
consent  as  an  exception  to  the  constitutional  rule.^ 

It  is  clear  from  this  brief  survey  that  the  general  property  tax 
has  not  been  rehabilitated  by  the  present  degree  of  state  control 
over  taxation  in  New  Hampshire.  It  is  even  somewhat  doubtful 
if  approximate  equahty  of  assessment  of  property  other  than 
intangibles  is  being  attained.  The  commission  publishes  so  few 
data  that  it  is  not  possible  to  test  their  conclusions  on  this  point. 
But  no  other  tax  commission  has  found  a  single  equalization 
sufficient  to  eliminate  all  inequaUties  in  the  local  assessment.  On 
the  other  hand,  steady  attention  to  this  task,  using  the  best 
developed  methods  of  investigation  and  independent  testing  of 
the  assessors'  work,  have  not  entirely  availed  elsewhere  while  the 
general  property  tax  was  retained.  The  experience  of  New  Hamp- 
shire makes  perfectly  clear  the  necessity  of  modifying  this  tax 
system  as  well  as  of  improving  the  central  administrative  organi- 
zation at  various  points.  The  size  of  the  state  makes  close  local 
supervision  possible,  and  the  New  Hampshire  commissioners  have 
been  careful  to  maintain  close  relations  with  the  local  officials.  In 
a  certain  respect  the  commission's  most  notable  achievement  has 
been  the  degree  to  which  it  has  been  able  to  meet  and  overcome 
the  local  prejudice  against  administrative  centralization,  and 
thus  to  prepare  the  way  for  further  administrative  developments. 

3.  The  Board  of  Tax  Commissioners  of  Rhode  Island 

The  tax  system  of  Rhode  Island,  until  a  few  years  ago,  was  the 
general  property  tax  in  an  unusually  pure  form.  There  was  no 
semblance  of  central  administration,  and  even  the  state  equaUza- 
tion  which  had  appeared  in  other  New  England  states  was  lacking. 
The  initiative  in  suggesting  a  change  in  the  system  of  taxa- 
tion appears  to  have  been  taken  by  the  governor,  who,  in  his 
1  Quoted  by  W.  B.  Fellows,  loc.  cit.,  p.  182. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      533 

message  of  January  5,  1909,  proposed  the  appointment  of  a  special 
committee.^  This  proposal  resulted  in  the  establishment  of  a 
joint  special  committee  on  taxation  laws  in  May  of  the  same 
year,  created  ''  for  the  purpose  of  taking  into  consideration  the 
laws  of  the  state  relative  to  taxation  "  and  reporting  such  changes 
as  might  be  deemed  advisable.^  This  committee  reported  in  1910, 
and  for  the  present  purpose  the  recommendation  of  greatest 
interest  was  that  for  administrative  centralization  of  the  revenue 
system.  It  was  held  that  this  should  be  undertaken  without 
delay  because  of  the  chaos  which  had  followed  the  characteristic 
New  England  policy  of  complete  freedom  of  local  units  from  state 
supervision.' 

The  joint  special  committee  was  much  influenced  by  the  prog- 
ress of  the  movement  for  central  supervision,  and  recommended 
the  appointment  of  a  tax  commissioner  who  should  have  "  at 
least  advisory,  if  not  revisory  powers  over  local  assessments." 
No  action  was  taken  upon  the  report  in  1910,  and  the  committee 
was  continued  until  the  legislative  session  of  191 1  with  instruc- 
tions to  report  again  at  that  time.  In  its  second  report  the  com- 
mittee declared  that  no  change  of  views  had  been  experienced 
since  its  first  report;  on  the  other  hand,  its  respect  for  state 
supervision  had  been  enhanced  by  the  creation,  since  1909,  of 
state  tax  commissions  in  three  states.^ 

The  suggestion  for  central  supervision  apparently  proved 
unpalatable  to  the  legislature,  and  the  subsequent  history  of  the 
committee's  recommendation  reveals  the  struggle  that  was  made 
against  it.  This  history  is  found  in  the  legislative  calendar.^  The 
committee  reported  its  bill  providing  for  the  appointment  of  a 
tax  commissioner,  but  the  committee  on  the  judiciary  moved 
indefinite  postponement  and  the  passage  of  a  substitute  measure. 
The  latter  was  read  and  referred  to  the  joint  committee  with 

'  Message  of  Governor  Pothier  to  the  General  Assembly,  January  5,  1909.    Quoted 
in  the  Report  of  the  Joint  Special  Committee  on  Taxation  Laws,  19 10,  p.  4. 
'  Joint  Resolution  of  the  General  Assembly,  May  6,  1909. 

*  Report  of  the  Joint  Special  Committee  on  Taxation  Laws,  1910,  pp.  16,  17. 

*  Ibid.,  Second  Report,  191 1,  p.  8. 

'  The  record  is  quoted  in  the  Special  Report  of  the  Joint  Special  Committee,  191 1, 
P-3- 


534  THE  STATE  TAX  COMMISSION 

instructions  "  further  to  consider  the  subject,  to  give  public 
hearings,  and  to  report  to  the  next  General  Assembly  bills  equit- 
ably taxing  all  corporations  created  by  or  doing  business  in  this 
state." 

By  these  instructions  the  committee  was  plainly  requested  to 
restrict  its  scheme  for  a  state  tax  department  to  the  supervision 
of  the  corporation  taxes.  There  was  here  also  a  thinly  veiled 
attempt  to  nullify  the  efforts  of  the  committee,  by  requiring  it  to 
formulate  a  law  taxing  all  corporations  by  the  same  method. 
Certain  pubHc  corporations  had  accepted  the  provisions  of  a  law 
of  1909,^  by  which  a  tax  on  gross  earnings  had  been  levied  in  lieu 
of  all  other  taxes  except  such  as  had  already  been  imposed,  or  as 
might  thereafter  be  imposed  "  generally  and  without  discrimina- 
tion upon  the  property,  income,  rights,  privileges  and  franchises 
of  all  persons  and  corporations."  The  committee  drafted  a  law 
taxing  all  corporations  on  their  corporate  excess.  This  appeared 
so  burdensome  to  those  companies  which  had  accepted  the  law 
of  1909  that  they  voluntarily  surrendered  their  rights  under  this 
law  and  opened  the  way  for  the  use  of  two  methods  of  taxation  — 
the  corporate  excess  of  one  class  and  the  gross  earnings  of  the 
other.2 

The  teeth  of  the  plan  for  central  supervision  of  local  assess- 
ments were  painlessly  extracted  by  changing  a  single  word  in  the 
original  bill,  so  as  to  produce  the  following  result:  ^ 

Section  4.  The  commissioners  may  visit  any  city  or  town  to  inspect  the 
work  of  local  assessors,  and  to  confer  with,  advise  and  give  them  such  infor- 
mation and  request  [original  wording  require]  of  them  such  action  as  will 
tend  to  produce  uniformity  in  valuation  and  assessment  throughout  the 
state. 

A  third  report  of  the  joint  special  committee,  in  191 2,  sub- 
stituted a  board  of  three  commissioners  for  the  single  official  and 
in  this  form  the  bill  was  passed.  The  governor  was  to  appoint, 
with  the  consent  of  the  senate,  three  commissioners  for  a  regular 
term  of  six  years  at  a  salary  of  $3000.   The  "  tax  act  of  191 2,"  as 

*  General  Laws  of  Rhode  Island,  1909,  ch.  216. 

2  Personal  Letter  from  Mr.  Z.  W.  Bliss,  Chairman  of  the  Board,  March  23,  191 7. 

*  Cf .  the  wording  of  this  section  in  the  Second  Report  and  the  Special  Report  of 
the  Joint  Special  Committee  on  Taxation  Laws,  191 1,  and  as  passed. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      535 

the  measure  was  called,  made  a  number  of  important  changes 
m  the  revenue  system. ^  Among  the  more  important  of  these  were 
the  application  of  the  corporate  excess  method  of  taxation  to 
manufacturing,  mercantile,  and  miscellaneous  corporations,  the 
taxation  of  the  gross  receipts  of  public  service  companies,  the 
levy  of  a  flat  rate  of  $.40  per  $100  on  intangibles,  the  taxation  of 
all  tangibles  where  found,  the  separate  assessment  of  lands, 
buildings,  tangible  and  intangible  personal  property,  and  the 
reduction  of  the  state  tax  by  one-half.  In  the  local  assessment  an 
offset  for  indebtedness  was  allowed  only  against  money  in  hand, 
in  bank,  or  at  interest  and  debts  due  from  others,  instead  of 
against  all  property  except  real  estate,  as  had  been  the  former 
rule.  The  administrative  duties  of  the  board  of  tax  commis- 
sioners, and  the  effects  of  these  changes  upon  the  state  finances 
and  the  problem  of  equitable  distribution  of  the  tax  burden,  will 
be  briefly  considered. 

The  Rhode  Island  law  for  the  taxation  of  corporate  excess 
differs  from  that  of  Massachusetts  in  important  particulars. 
Thus,  the  former  requires  the  inclusion  of  bonds,  debentures,  and 
any  indebtedness  incurred  in  the  acquisition  of  real  estate  or 
tangible  personalty,  in  calculating  the  total  value  of  the  corpora- 
tion; and  as  deductions  the  company  may  receive  allowance  for 
real  estate  and  all  tangible  personalty  taxed  locally,  together  with 
all  exempt  securities  or  other  exempt  property.  The  corporate 
value  of  those  corporations  doing  business  outside  the  state  is 
to  be  apportioned  on  the  basis  of  the  relative  value  of  the  real 
estate  or  of  the  tangible  personal  property,  if  the  company's 
profits  are  mainly  derived  from  transactions  in  real  estate,  or 
from  manufacturing  operations  involving  the  sale  or  use  of  tan- 
gible personalty,  respectively.  If  the  profits  are  reaUzed  mainly 
from  the  holding  or  sale  of  intangibles,  the  relative  gross  receipts 
for  the  state  and  the  entire  business  are  to  be  taken  as  the  basis  of 
distribution  of  the  corporate  valuation.  In  any  cases  in  which 
these  proportions  are  not  equitably  applicable,  the  commission 
is  authorized  to  make  such  distribution  as  is  equitable.^  This 
gives  the  commission  very  wide  discretionary  powers,  and  the 

'  Public  Laws  of  Rhode  Island,  1912,  ch.  769.  '  Ibid.,  ch.  784. 


536  THE  STATE  TAX  COMMISSION 

chairman  thinks  it  of  doubtful  constitutionality.  It  has  been  used 
but  seldom,  though  with  such  beneficial  results  both  to  the  state 
and  to  the  taxpayer  that  the  constitutional  question  has  never 
been  raised.^  The  corporate  excess  is  taxed  at  the  rate  of  $.40  on 
the  $100,  and  the  entire  receipts  from  this  tax  are  paid  into  the 
state  treasury  for  state  purposes.  In  compensation  for  this 
increase  in  the  state  revenues,  and  as  an  allowance  on  account  of 
the  loss  in  municipal  revenues  due  to  the  exemption  of  savings 
accounts  by  the  act  of  191 2,  the  state  tax  rate  was  reduced. 

The  principal  task  of  the  board  in  administering  the  tax  on  the 
corporate  excess  is  the  determination  of  the  taxable  excess.  The 
original  act  required  the  use  of  the  average  fair  cash  value  of  the 
capital  stock  for  the  preceding  three  years.  This  provision 
proved  unpractical  because  of  the  large  number  of  variables  over 
a  three-year  period,  and  in  191 5  the  board  was  permitted  to  use 
the  average  value  for  the  year  preceding.^  The  actual  method  of 
valuing  the  stocks  and  bonds  is  nowhere  described  in  the  pub- 
lished reports,  but  strong  rehance  appears  to  be  placed  upon  the 
returns  of  the  companies  themselves.^  Legislation  since  191 2  has 
broadened  the  scope  of  the  returns  required  of  the  corporations, 
and  while  the  board  has  the  power  of  making  an  examination  of 
the  books  of  any  corporation,  this  has  never  been  found  neces- 
sary. The  board  is  bound  by  the  local  assessment  of  the  real 
estate  and  personalty  in  making  the  deductions  for  these  classes  of 

1  Personal  Letter  from  Mr.  Z.  W.  Bliss.  Chairman  of  the  Board,  March  23,  1917. 

*  Public  Laws  of  Rhode  Island,  1915,  ch.  1180.  Board  of  Tax  Commissioners, 
Report,  1916,  p.  II. 

'  The  following  extract  from  a  recent  letter  describes  the  board's  methods  of 
corporate  valuation: 

"  All  corporations  liable  to  the  corporate  excess  tax  are  required  to  file  a  trial 
balance  as  of  the  31st  of  December  and  to  show  the  amount  of  dividends  paid  dur- 
ing the  year,  the  gross  earnings  and  the  amount  of  business  transacted  for  the  same 
period.  If  the  stocks  or  bonds  have  a  well  defined  market  value,  that  value  is  used; 
if  not,  the  stocks  and  bonds  are  appraised  by  the  board,  and  in  this  appraisal  all  of 
the  elements  which  may  reasonably  be  considered  as  affecting  the  values  are  taken 
into  consideration.  The  law  requires  the  full  and  fair  cash  value  which  sometimes 
is  different  from  the  value  indicated  by  sales  or  market  value.  The  control  of  a  cor- 
poration may  depend  on  the  possession  of  a  few  shares  and  the  price  of  these  shares 
consequently  be  very  high,  or  a  forced  sale  might  indicate  a  very  low  price.  Such 
sales  are  not  considered  as  conclusively  indicating  the  fair  cash  value  by  the  com- 
mission."   Personal  Letter  from  Z.  W.  Bliss,  Chairman  of  the  Board,  March  23, 1917. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      537 

property.  The  marked  difference  in  the  tax  rate  on  corporate 
excess  and  those  ordinarily  levied  on  the  property  locally  assessed 
presents  a  strong  temptation  to  the  corporations  to  secure  an 
underassessment  of  the  tangible  property.  Supervision  of  the 
local  returns  should  be  granted  the  board  in  the  calculation  of  the 
corporate  excess. 

The  plan  provided  in  191 2  for  the  apportionment  of  the  value 
of  companies  doing  business  outside  the  state  has  not  proved 
entirely  satisfactory.  The  board  has  no  objection  to  its  operation 
as  to  corporations  doing  business  wholly  without  the  state,  those 
transacting  exclusively  an  interstate  mercantile  business,  and 
those  doing  an  interstate  manufacturing  business  with  plants 
located  in  Rhode  Island.  In  these  cases  the  tangible  assets  appear 
to  form  a  sufl&ciently  equitable  basis  for  the  apportionment  of  the 
corporate  valuation.  But  manufacturing  corporations  having  no 
plant  in  Rhode  Island  and  doing  only  a  mercantile  business  in 
that  state  are  not  adequately  taxed,  since  the  rapid  turnover 
means  a  relatively  small  stock  of  goods  on  hand,  especially  on  the 
assessment  date.  In  one  case  gross  receipts  of  $500,000  were 
earned  on  a  daily  stock  in  trade  of  not  above  $20,000.  The  board 
recommends  taxation  of  such  companies  on  their  gross  receipts  in 
the  state  instead  of  upon  their  corporate  excess.^ 

The  large  number  of  domestic  corporations  doing  no  business 
whatever,  or  doing  business  wholly  without  the  state,  has  led  the 
board  to  recommend  consistently  that  some  means  of  taxation  be 
devised,  not  only  for  revenue  purposes  but  also  as  a  means  of 
simplifying  the  process  of  dissolution.  In  191 6  such  a  tax  was 
imposed,  at  the  rate  of  $2.50  for  each  $10,000  or  fractional  part 
thereof  of  authorized  capital.  This  tax  was  also  established  as  a 
minimum  tax  upon  corporate  excess.  In  the  case  of  nonpayment 
of  this  tax  for  three  years  the  attorney-general  is  to  bring  suit  for 
dissolution  in  the  superior  court  of  Providence  county.  No  great 
amount  of  revenue  is  expected  from  this  tax,  which  is  to  serv'e 
principally  as  a  check  upon  overcapitalization  and  to  facilitate 
dissolution  of  corporations.^ 

*  Board  of  Tax  Commissioners,  Report,  1913,  p.  21. 

*  Ibid.,  1917,  pp.  10-12.    Public  Laws  of  Rhode  Island,  1916,  ch.  1362. 


538  THE  STATE  TAX  COMMISSION 

The  procedure  for  review  of  the  board's  assessment  of  corporate 
excess  is  unsatisfactory  in  theory,  however  it  may  actually  work  in 
Rhode  Island.  Any  corporation  may  appeal  from  the  board's 
assessment  to  the  superior  court  of  Providence  and  Bristol  coun- 
ties. The  court  may  review  the  assessment,  approve  it  if  found 
correct,  and  make  a  new  and  binding  assessment  if  the  board's 
result  is  found  to  be  incorrect.  It  has  been  pointed  out  above,  in 
more  than  one  connection,  that  a  court  is  in  no  position  to  pass 
accurate  judgment  upon  the  board's  findings  of  fact  as  to  the 
value  of  the  corporation,  and  that  such  a  poHcy  of  judicial  review 
may  actually  become  very  objectionable. 

The  tax  on  the  corporate  excess  of  banks  is  also  very  unsatis- 
factory. The  act  of  191 2  was  amended  two  years  later  to  permit 
the  deduction  of  the  securities  of  corporations  already  taxed  on 
corporate  excess  or  upon  gross  earnings.^  The  natural  effect  of 
this  amendment  was  greatly  to  reduce  the  amount  of  corporate 
excess  taxable  to  banks  without  a  compensating  increase  in  their 
tax  burden  at  another  point.  In  191 6  the  appraised  value  of 
bank  shares  in  Rhode  Island  was  $30,300,000,  of  which,  the  board 
estimated,  $28,000,000  represented  intangible  value.  The  tax  on 
corporate  excess  was  $28,211,  or  roughly  one-tenth  per  cent  on 
the  intangible  value  represented.  But  this  neghgible  tax  was  not 
distributed  uniformly.  Instead  it  was  collected  from  bank  stocks 
appraised  at  about  $15,000,000,  leaving  $13,000,000  of  intangible 
value  entirely  untaxed.  The  board  recommends  repeal  of  this 
portion  of  the  tax  act  of  191 2,  or  amendment  to  secure  more 
equitable  taxation. ^ 

The  gross  earnings  tax  on  pubHc  service  corporations  has 
apparently  operated  satisfactorily,  both  from  the  standpoint  of 
administration  and  of  the  financial  returns.  The  results  from  the 
whole  series  of  corporation  taxes  since  191 2  may  be  presented 
together  in  the  table  on  the  following  page.^ 

The  growing  financial  needs  of  the  state  have  finally  raised  the 
question  whether  the  experiment  of  191 2,  of  taxing  the  corporate 

^  Public  Laws  of  Rhode  Island,  1914,  ch.  1068. 

^  Board  of  Tax  Commissioners,  Report,  1917,  pp.  12,  13. 

^  Ibid.,  pp.  26,  27. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      539 

Receipts  from  the  Taxation  of  Corporations  under  the  Tax 
Act  of  191 2 

Per  cent  of  total 
Manufacturing,  taxes  on  corpora- 

mercantile,  Public  Banks,  trust      tions  to  total  state 

Year  miscellaneous  service  companies,  etc.  revenue 

191 2 $534,824  $200,548  $70,878  24.80 

1913 549.743  213,223  69,710  24.03 

1914 535.317  221,057  65,584  26.15 

191S 535,567  225,285  35,549  23.83 

1916 621,089^  231,173  27,726  24.06 

excess  of  prosperous  corporations  at  the  same  rate  as  other  intan- 
gibles, can  be  allowed  to  continue.  The  figures  just  given  show 
that  the  revenue  derived  from  the  corporation  taxes  has  not  made 
a  striking  increase,  although  it  has  maintained  a  fairly  constant 
proportion  of  the  total  state  income.  In  191 5  the  governor 
requested  the  board  to  submit  a  report  on  possible  increases  of 
revenue,  expressing  the  preference  for  new  sources  of  income  over 
increases  in  tax  rates.  The  board  proposed  three  new  taxes  in  its 
report,  published  in  191 6.  All  of  these  were  immediately  adopted. 
One  of  the  three  was  the  franchise  and  minimum  tax  on  corporate 
excess,  referred  to  above.  Of  the  $96,537  assessed  under  this  law, 
about  $16,650  was  paid.  The  second  new  source  of  revenue  pro- 
posed by  the  board  was  a  tax  of  $4.00  on  each  $1000  of  savings 
and  participation  accounts  in  national  banks.^  Such  a  tax,  col- 
lected from  the  banks  with  exemption  to  the  depositors,  had 
already  been  in  operation  against  such  deposits  in  state  banks, 
trust  companies,  and  savings  institutions.  In  1916  this  tax 
yielded  $24,025,  The  third  and  most  important  of  the  new  taxes 
was  an  inheritance  tax  which  brought  in  $134,379  in  the  first 
year.^  The  administration  of  this  tax  is  in  the  charge  of  the  board 
of  tax  commissioners  and  to  the  present  no  serious  difficulties  have 
been  encountered.  The  provision  that  the  tax  shall  be  a  Hen  on 
the  property  transferred  renders  necessary  a  very  complete 
return  of  data  regarding  the  property  and  for  this  purpose  the 
board's  clerical  equipment  has  already  proved  inadequate.* 

'  Includes  receipts  from  franchise  and  minimum  ta.x  in  19 16. 

*  Public  Laws  of  Rhode  Island,  1916,  ch.  1359. 

*  Ibid.,  ch.  1339. 

*  Board  of  Tax  Commissioners,  Report,  1917,  pp.  10-21. 


540  TEE  STATE  TAX  COMMISSION 

The  new  sources  of  revenue  proposed  by  the  board  produced  in 
191 6  about  4.45  per  cent  of  the  total  state  revenue.  Though  the 
yield  in  the  first  year  is  hardly  a  fair  test,  it  is  clear  that  the  sub- 
sequent returns  cannot  be  sufficient  to  take  care  of  the  expanding 
state  requirements  for  long.  Soon  the  problem  of  additional 
sources  of  revenue  must  be  faced  again.  The  choice  will  probably 
lie  between  an  increase  in  the  direct  tax  on  general  property  and 
a  state  income  tax.  In  favor  of  the  former  is  the  well  known 
attitude  of  the  state  toward  the  taxation  of  industry,  an  attitude 
which  is  seen  in  the  moderate  taxation  of  corporate  excess;  on 
the  other  hand,  the  success  of  modern  state  income  taxes,  and  the 
recent  adoption  of  such  a  tax  in  Massachusetts,  will  prove  weighty 
considerations  in  favor  of  this  tax. 

It  has  already  been  noted  that  the  tax  act  of  191 2  provided  for 
a  reduction  of  the  state  tax  rate  on  general  property  from  $.18  to 
$.09  per  $100.  The  joint  special  committee  favored  separation  of 
the  sources  of  revenue,  and  even  anticipated  the  time  when  the 
state  tax  might  be  dispensed  with  entirely.^  The  strong  pref- 
erence for  local  autonomy  on  the  part  of  the  country  towns 
proved  the  decisive  factor  in  continuing  the  traditional  absence  of 
state  equalization,  though  the  special  committee  on  taxation  did 
advocate  very  strongly  the  extension  of  state  supervision  over  the 
local  assessments.  The  lack  of  both  equalization  and  supervision 
has  proved  a  serious  matter,  however,  as  undervaluation  has 
continued  notwithstanding  the  very  low  rate  of  state  tax.  In 
fact,  local  assessments  of  general  property  in  Rhode  Island  appear 
to  be  in  a  chaotic  condition,  in  many  ways.  There  is  no  uniform 
assessment  date,  and  each  town  establishes  its  own  date  of  assess- 
ment. It  is  quite  possible  for  the  owners  of  certain  forms  of  prop- 
erty to  evade  the  assessor  altogether  by  transferring  this  property 
from  one  tax  district  to  another.  There  is  no  requirement  of 
regular  reassessment  of  property  and  in  many  cases  the  original 
valuations  stand  for  years,  the  additional  revenue  being  provided 
by  increases  in  the  rates.  Without  equalization,  this  distribution 
of  the  tax  burden  becomes  very  unequal.  Finally,  the  board  of 
tax  commissioners  has  been  compelled  every  year  to  take  notice 
^  Report  of  the  Joint  Special  Committee  on  Taxation  Laws,  1909,  p.  23. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES       54 1 

of  the  local  undervaluation,  discrimination,  and  evasion.  These 
conditions  prevail  not  only  with  regard  to  real  estate  and  tangible 
personalty,  but  as  well  with  regard  to  intangibles.  The  low  rate  of 
taxation  imposed  upon  the  latter  has  not  resulted  in  securing 
adequate  returns,  under  local  administration,  however  satisfac- 
tory the  results  may  be  as  compared  with  former  conditions.  The 
experience  of  Minnesota  is  being  repeated  here,  viz.,  that  strong 
and  effective  state  supervision  is  required  to  make  even  such  a 
tax  successful.  There  is  no  reason  to  believe  that  local  adminis- 
tration of  a  flat  tax  on  intangibles  will  be  ultimately  more  success- 
ful than  were  the  locally  administered  state  income  taxes.  Rhode 
Island  needs,  therefore,  to  introduce  at  once  an  adequate  system 
of  supervision  over  local  assessments,  and,  especially  if  the  rate  of 
the  state  tax  is  to  be  increased  as  a  part  of  the  program  of  secur- 
ing additional  state  revenues,  to  endow  the  board  of  tax  com- 
missioners with  the  requisite  authority  for  the  proper  equalization 
of  the  local  assessments  over  which  this  tax  is  to  be  distributed. 

4.  The  Commissioner  of  State  Taxes  of  Vermont  ^ 

The  early  difficulties  in  the  decentralized  administration  of 
property  taxes  in  Vermont  have  been  referred  to  above. ^  It  was 
there  noted  that  a  system  of  county  and  state  equahzation  was 
provided  in  1820  for  the  equalization  of  the  triennial  appraisal  of 
real  estate  which  was  introduced  at  that  time.  The  county  board 
of  equalization  was  composed  of  one  lister  from  each  town,  with 
the  power  to  adjust  values  among  the  towns.  Equalization  among 
the  counties  was  performed  by  a  state  board  composed  of  one 
assemblyman  from  each  county.  After  various  modifications  in 
the  tax  system,  the  general  property  tax  was  introduced  in  1841 ' 
but  with  no  changes  in  the  administrative  structure  which  had 
already  been  created.  While  this  act  introduced  the  principle  of 
the  uniform  rule  it  was  peculiar  in  that  it  required  all  taxable 
property  to  be  put  down  in  the  grand  list  for  taxation  at  one  per 

^  For  further  historical  material,  cf.  F.  A.  Wood,  History  of  Taxation  in  Vermont, 
1894;   and  ibid.,  The  Finances  of  Vermont,  1913. 

*  Cf.  above,  pp.  20,  21. 

*  Laws  of  Vermont,  1820,  ch.  23;  ibid.,  1841,  no.  16. 


542  THE  STATE  TAX  COMMISSION 

cent  of  its  full  value.  This  singular  provision  has  been  retained  to 
the  present.  It  afforded  the  advantage  in  1841  of  avoiding  too 
great  a  break  with  the  level  of  valuations  which  had  become 
familiar  through  the  Hsting  of  various  classes  of  property  at  low 
percentages  of  their  value,  but  at  the  present  it  is  of  doubtful 
benefit. 

The  composition  of  the  state  board  of  equalization  was  changed 
in  1872  by  substituting  one  member  from  each  county  convention 
for  the  legislators,  and  by  making  the  secretary  of  state  ex  officio 
chairman.  This  board  equalized  only  the  assessments  of  real 
estate,  which  were  to  be  made  thereafter  quadreimially.^  Ten 
years  later  the  whole  machinery  of  equaHzation  was  abandoned  in 
connection  with  the  introduction  of  a  new  system  of  corporate 
taxation.^ 

This  new  system,  which  was  a  series  of  taxes  on  gross  earnings, 
had  been  preceded  by  a  number  of  experiments  in  corporate  taxa- 
tion. The  earhest  taxation  policy  with  respect  to  railroads  had 
been  characterized  by  varying  degrees  of  exemption  according  to 
provisions  in  the  charters  of  individual  companies.  In  1874  the 
real  estate  used  in  operation  was  made  taxable  locally,  and  in 
1880  a  board  of  three  commissioners  appointed  by  the  governor 
was  provided  to  assess  this  real  estate  and  certify  the  valuation  to 
the  local  Ksters.^  This  beginning  of  ad  valorem  taxation  was 
abandoned  in  the  tax  act  of  1882  for  a  system  of  taxes  on  gross 
earnings  which  was  appHed  to  railroad,  insurance,  guarantee, 
express,  telegraph,  telephone,  steamboat,  car,  and  transportation 
companies.*  The  office  of  state  tax  commissioner  was  estabhshed 
to  administer  these  taxes.  The  tax  commissioner  was  to  be 
appointed  for  a  term  of  two  years  at  a  salary  of  $1000  and  neces- 
sary travelHng  expenses.  Any  allowance  for  clerk  hire,  fuel, 
lights,  or  rent  was  specffically  forbidden.  In  1890  the  salary  was 
increased  to  $1100  and  the  legislature  munificently  authorized 
the  appointment  of  a  clerk  at  a  salary  of  $300  "if  the  business  of 
the  office  demands  it."  ^  The  principal  administrative  duty  of  the 

'  Laws  of  Vermont,  1872,  no.  15.  ■•  Ibid.,  1882,  no.  2. 

2  Ibid.,  1882,  no.  I.  '  Ibid.,  1890,  no.  3. 

3  Ibid.,  1880,  no.  80. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      543 

tax  commissioner  was  to  prepare  and  send  out  the  blanks  upon 
which  the  corporation  officials  were  to  make  a  sworn  return  as  to 
their  earnings.  He  was  authorized  to  examine  and  correct  these 
returns. 

The  taxes  on  gross  earnings  were  held  unconstitutional  in  1890/ 
as  an  unlawful  imposition  upon  interstate  commerce.  A  system  of 
ad  valorem  taxes  on  corporations  was  therefore  substituted,  and 
the  commissioner  of  taxes  was  required  to  appraise  the  property 
and  franchises  of  the  companies  subject  to  this  act.^  This  assess- 
ment was  to  be  taxed  at  seven-tenths  per  cent.  The  legislation  of 
1890  was  clearly  not  meant  to  be  taken  seriously,  for  it  contained 
provision  for  an  alternative  tax  on  gross  earnings.  The  tax  com- 
missioner continued  to  make  the  appraisals  as  required  by  law, 
but  the  option  of  the  tax  on  assessed  value  was  chosen  by  only 
one  or  two  of  the  smaller  railroad  companies.  Various  changes 
were  made  in  the  rates  levied  under  both  systems,  and  in  191 2  the 
gross  earnings  plan  was  abandoned  for  a  straightforward  ad 
valorem  system  appHcable  to  railroad,  steamboat,  car,  and  tele- 
phone companies.^  The  commissioner  of  state  taxes  was  required 
to  make  the  appraisal  biennially  on  the  basis  of  such  information 
relative  to  the  value  of  the  property  as  he  might  be  able  to  obtain. 
The  published  reports  from  his  office  contain  no  reference  to  the 
methods  which  have  been  used  in  making  these  appraisals.^  It  is 
significant,  however,  that  as  the  result  of  the  appeals  which  were 
taken  by  the  state  as  well  as  the  corporations,  the  aggregate  rail- 
road assessment  was  increased  in  191 2  from  $39,201,000  to 
$43,862,000.^  The  appeal  board  provided  for  the  review  of  these 
assessments  consists  of  the  lieutenant-governor,  secretary,  and 
auditor  of  state.  No  appeals  were  taken  from  the  appraisals  of 
1914. 

Central  assessment  of  bank  stock  was  begun  under  an  act  of 
1 9 14  by  a  board  consisting  of  the  treasurer,  bank  commissioner, 

*  63  Vermont,  1.  ^  Laws  of  Vermont,  1890,  no.  3. 
^  Ibid.,  191 2,  nos.  50  and  51. 

*  The  problems  involved  in  the  assessment  of  telephone  properties  are  described 
by  the  commissioner,  C.  A.  Plumley,  in  "  Valuation  of  Telephone  Properties," 
National  Tax  Bulletin,  i,  pp.  69-72. 

*  State  Tax  Commissioner  of  Vermont,  Report,  1914,  p.  65. 


544  THE  STATE  TAX  COMMISSION 

and  tax  commissioner.^  The  local  assessment  of  bank  shares  had 
become  very  unequal  through  the  different  towns  of  the  state 
and  the  shares  were  to  no  small  extent  undervalued.  The  result 
of  the  first  appraisal  by  the  new  board  was  the  addition  of 
$844,000  to  the  valuation.^ 

Various  duties  of  minor  fiscal  importance  have  been  added  to 
the  tasks  of  the  tax  commissioner.  Among  these  have  been  the 
issuance  of  licenses  to  pedlers  and  traders,  the  apportionment  of 
funds  in  aid  of  county  agricultural  work,  joint  service  with  the 
secretary  of  state  as  commissioner  of  foreign  corporations,  and 
registrar  of  partnerships  doing  business  in  the  state.  In  some 
cases,  at  least,  there  is  only  incidental  revenue  derived,  and  for 
the  proper  administration  of  all  of  these  lesser  duties  the  present 
equipment  and  resources  of  the  office  appear  to  be  inadequate.^ 

The  mistake  made  in  1882  by  discontinuing  all  provision  for  a 
state  equahzation  is  now  generally  recognized.  A  special  report 
was  made  by  the  tax  commissioner  in  1902  on  the  subject  of 
taxation  in  Vermont,  and  in  this  report,  after  a  comparison  of 
relative  assessed  values,  tax  rates,  and  quotas  of  state  tax  among 
the  counties,  the  reestabhshment  of  a  state  board  of  equalization 
was  recommended.*  The  special  tax  commission  of  1908  pro- 
posed to  give  equalizing  powers  to  the  permanent  tax  commission 
which  it  suggested.^ 

The  Vermont  law  of  1882  is  an  early  example  of  the  theory 
which  later  became  quite  popular,  to  the  effect  that  such  super- 
vision as  was  exercised  through  the  state  equahzation  could  be 
dispensed  with  upon  the  introduction  of  certain  other  changes, 
notably  the  separation  of  sources  and  a  greater  degree  of  respon- 
sibiHty  upon  the  taxpayer  for  a  complete  return.  The  first  of 
these,  separation  of  the  sources  of  state  and  local  revenue,  was 
contemplated  in  the  new  corporation  taxes  of   1882,  but  the 

1  Laws  of  Vermont,  1914,  no.  31. 

'  State  Tax  Commissioner  of  Vermont,  Report,  19 16,  p.  10. 

'  Cf.  the  discussion  of  these  duties  in  the  Tax  Commissioner's  Report  for  19 16, 
pp.  7-14. 

<  Commissioner  of  State  Taxes,  Special  Report  relating  to  Taxation  of  Corpora- 
tions and  Individuals,  1902,  pp.  46,  47. 

'  Report  of  the  Commission  on  Taxation,  State  of  Vermont,  1908,  pp.  30,  31. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      545 

revenue  from  these  and  other  special  taxes  has  not  entirely  sufficed 
for  state  purposes  and  a  direct  levy  has  at  times  been  made.i 
Resort  to  such  a  levy  could  probably  have  been  obviated  by 
heavier  special  taxes  for  state  uses,  but  even  entire  elimination  of 
the  direct  state  tax  would  not  have  rendered  equalization  of  the 
local  assessments  unnecessary.  It  is  perfectly  clear,  however,  that 
reasonable  equality  of  assessments  could  not  have  been  secured 
by  a  state  board  of  equalization  with  the  composition  and 
restricted  authority  of  the  earlier  Vermont  board. 

The  second  innovation  upon  which  reHance  was  placed  for 
overcoming  inequitable  assessments  was  the  sworn  return  of 
personal  property.  The  board  of  equaUzation  had  never  dealt 
with  personalty,  and  by  1880  the  returns  of  this  general  class  of 
property  had  begun  to  display  the  universal  tendency  toward 
escape  from  the  tax  rolls.  The  total  assessment  of  personal  estate 
fell  from  $21,400,000  in  1866  to  $15,000,000  in  1880.^  The  powers 
of  inquisition  and  doomage  which  the  hsters  had  possessed  had 
varied  at  different  times,  but  in  general  this  method  of  Hsting 
personal  property  had  been  employed.  In  1880  listing  by  inquisi- 
tion was  replaced  by  a  sworn  return,  quite  similar  to  that  which 
has  recently  been  introduced  in  Ohio.^  The  taxpayer  was  to  be 
furnished  with  a  blank  on  which  exceedingly  detailed  inquiries 
regarding  taxable  property  were  to  be  answered.  These  returns 
were  to  be  sworn  to  before  the  listers,  and  in  case  of  incorrect- 
ness or  of  failure  to  make  returns,  the  latter  were  to  assess  by 
doomage  and  impose  100  per  cent  penalty.  The  special  tax  com- 
mission of  1908  sent  out  agents  to  examine  the  inventories  then 
on  file,  and  of  the  113,000  inspected,  only  3652  were  found  to  be 
legal  inventories.  It  was  found  also  that  the  grand  list  books  con- 
tained the  names  of  thousands  of  individuals  who  had  filed  no 
inventory  for  1907,  and  the  commission  estimated  that  less  than 
3  per  cent  of  the  resident  taxpayers  had  filed  legal  inventories  for 
that  year.  The  inventories  inspected  were  not  merely  technically 
defective  —  many  were  not  sworn  to,  others  were  not  even  signed, 

1  Wood,  Taxation  in  Vermont,  p.  93,  note.  *  Ibid.,  p.  60. 

'  Laws  of  Vermont,  1880,  no.  78.    The  title  of  the  act  is  "  An  act  to  equalize 
Taxation."     Cf.  above,  p.  504. 


546  THE  STATE  TAX  COMMISSION 

and  numerous  other  evidences  of  deliberate  evasion  or  under- 
valuation were  abundant.  The  commission  estimated  that  the 
aggregate  penalties  against  listers  for  accepting  improper  returns 
in  1907  would  have  been  $20,000,000.  The  establishment  of  a 
state  tax  commission,  with  strong  powers  of  supervision  over 
local  assessments,  was  earnestly  recommended.^ 

The  only  response,  thus  far,  to  the  suggestions  for  a  greater 
degree  of  central  supervision  has  been  an  act  of  19 10  which  con- 
ferred very  mild  supervisory  powers  upon  the  tax  commissioner.^ 
This  act  requires  him  to  call  annual  meetings  of  the  listers  for  the 
purpose  of  instructing  the  latter  in  their  official  duties.  He  is  also 
to  prepare  printed  instructions  and  directions,  and  he  may  inspect 
their  returns.  This  supervision  is  purely  advisory  and  while  its 
exercise  has  proved  beneficial,  it  cannot  be  regarded  as  sufficient 
for  the  needs  of  the  case.  Vermont  stands  in  the  same  need  of 
fundamental  tax  reform,  both  in  the  tax  system  itself  and  in  the 
methods  of  administration,  that  many  other  states  have  found 
necessary.  The  special  tax  commission  of  1908  presented  a  rather 
comprehensive  program  for  the  accompHshment  of  these  ends, 
but  its  suggestions  received  scant  attention. 

5.  The  State  Tax  Commission  of  Maryland  ^ 

The  act  creating  the  tax  commission  of  Maryland  was  passed  in 
1914.^  It  provided  for  a  commission  of  three  members,  appointed 
by  the  governor  for  a  term  of  six  years,  at  a  salary  of  $3000.  The 
city  of  Baltimore  was  to  add  to  these  salaries  $3000  for  the  chair- 
man and  $2000  for  the  other  members,  as  additional  compensa- 
tion as  employees  of  the  municipal  corporation  of  Baltimore.^ 
Geographical  considerations  were  observed  to  the  extent  of  re- 

1  Report  of  the  Commission  on  Taxation,  State  of  Vermont,  1908,  pp.  20,  21. 

*  Laws  of  Vermont,  1910,  No.  38. 

5  H.  S.  Hanna,  A  Financial  History  of  Maryland,  1789-1848,  gives  valuable 
historical  material. 

*  Laws  of  Maryland,  1914,  ch.  841. 

*  This  device,  which  had  been  employed  in  other  instances,  was  used  for  the  pur- 
pose of  evading  the  constitutional  Umitation  on  salaries  paid  to  state  officials.  The 
case  of  Thrift  v.  Laird,  125  Md.  551,  removed  this  difficulty  and  in  1916  the  salaries 
of  members  of  several  state  commissions  were  made  payable  out  of  the  state  treasury, 
Laws  of  Maryland,  1916,  ch.  713. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      547 

quiring  the  governor  to  select  one  member  from  Baltimore  and 
one  from  the  counties  on  either  side  of  Chesapeake  Bay. 

The  tax  commission  law  is  very  elaborate,  as  was  perhaps 
necessary  in  view  of  the  confused  tax  system  which  existed  in 
Maryland.  The  commission  is  to  exercise  general  supervision 
over  the  local  tax  officials,  in  the  course  of  which  it  is  empowered 
to  investigate  any  assessment  on  its  own  initiative,  to  formulate 
standards  for  the  assessment  of  property,  and  to  prepare  all 
blanks  for  assessors  and  collectors  of  taxes.  A  continuing  method 
of  assessment  was  ordered  with  a  complete  reappraisal  of  prop- 
erty at  least  as  often  as  once  in  five  years.  The  commission's 
supervisory  powers  are  further  strengthened  by  the  authority  to 
appoint  a  supervisor  of  assessments  in  each  county  and  in  Balti- 
more. These  supervisors  are  to  act  as  the  local  representatives  of 
the  commission,  and  keep  in  close  touch  with  both  the  state  and 
the  local  officials.  Appeals  to  the  courts  from  the  commission's 
rulings  are  allowed  on  questions  of  law  only.  Finally,  the  entire 
administration  of  the  corporation  taxes  was  transferred  to 
the  tax  commission,  and  the  office  of  state  tax  commissioner  was 
abolished. 

The  first  point  to  be  noted  in  this  brief  summary  of  the  new  tax 
law  is  the  absence  of  clear  provision  for  a  general  state  equaliza- 
tion. This  has  been  characteristic  of  the  Maryland  system,  not- 
withstanding the  use  that  has  been  made  of  a  direct  state  tax.  In 
fact,  since  the  introduction  of  property  taxation  in  Maryland, 
there  has  been  very  inadequate  provision  for  the  equalization  of 
the  assessments,  whether  for  the  distribution  of  the  state  or  the 
local  tax  burdens.  Property  taxation  first  became  prominent  in 
Maryland  during  the  years  1777  to  1786,  and  at  this  time, 
singularly  enough,  there  was  a  completely  centralized  administra- 
tion of  the  tax.  A  board  of  "  commissioners  of  the  tax,"  or  "  levy 
court,"  as  they  were  variously  called,  was  appointed  for  each 
county  by  state  officials,  and  these  county  boards  in  turn 
appointed  the  local  assessing  officials.  Property  taxation  de- 
clined after  1786,  and  when  such  taxes  again  reappeared  as 
important  sources  of  revenue  the  development  of  local  adminis- 
tration had  been  completed  and  the  tax  system  was  thoroughly 


548  THE  STATE  TAX  COMMISSION 

decentralized.^  The  two  centrally  appointed  county  boards  had 
merged  into  the  board  of  county  commissioners,  a  locally  elected 
body  which  has  since  been  prominent  in  the  administration  of 
local  taxation. 2 

The  direct  state  tax  has  been  imposed  more  or  less  continuously 
since  1812,  and  always  upon  an  assessment  of  property  made 
especially  for  this  purpose.  Unfortunately  these  assessments 
were  not  made  at  regular  intervals,  as  in  other  states.  Instead, 
the  reassessment  acts  were  passed  at  most  irregular  intervals,  and 
usually  only  in  response  to  extreme  popular  pressure.^  Under 
these  circumstances  the  poUtical  aspect  of  such  legislation  became 
of  paramount  importance.  With  no  provision  for  state  or  local 
equalization  of  such  reappraisals  and  with  no  uniform  method  of 
assessment  in  the  different  counties,  it  is  readily  seen  that  the 
equitable  distribution  of  the  state  tax  was  impossible.  Add  to 
this  the  fact  that  a  separate  assessment  was  made  for  county  and 
municipal  purposes  and  the  confusion  becomes  chaos.  Property 
in  cities  was  found  in  1913  to  be  assessed  for  the  state  tax  at  $150 
per  front  foot  and  for  city  purposes  at  $300.  The  grossest  in- 
equahties  existed  also  between  counties,  and  among  individuals 
and  classes  of  taxpayers.* 

In  view  of  such  conditions,  the  existence  of  which  had  been 
clearly  recognized  for  a  long  time,  the  omission  of  provision  for  a 
general  state  assessment  and  equaHzation,  upon  which  all  taxes 
were  to  be  levied,  is  difficult  to  understand.  The  reasons  prob- 
ably lie  in  the  hidden  depths  of  state  poHtics.  Certainly  the 
special  tax  commission  of  1913  had  made  clear  enough  in  its 
report  the  need  for  such  action.^  Furthermore,  the  law  of  1914 
did  not  give  the  tax  commission  sufficiently  clear  and  definite 
powers  of  supervision  to  compensate  for  the  absence  of  equalizing 
powers.    This  body  decided,  properly  enough,  that  the  situation 

^  Cf.  Hanna,  op.  cii.,  pp.  12,  13.  The  general  property  tax  was  introduced  by 
Laws  of  Maryland,  1841,  ch.  23. 

'  T.  S.  Adams,  Taxation  in  Maryland,  p.  29. 

'  Report  of  the  Maryland  Tax  Commission,  1888,  pp.  9,  10. 

*  Report  of  the  Tax  Commission  of  Maryland,  1913,  p.  9.  This  commission  did 
not,  however,  press  for  state  equalization  as  a  function  of  the  tax  commission 
which  it  was  recommending. 

*  Ibid.,  pp.  56  ff. 


TAX  COMMISSIONS  IN  TEE  EASTERN  STATES      549 

demanded  a  general  reappraisal  immediately.  But  in  the  absence 
of  provision  for  uniform  machinery  of  assessment  which  the  order 
of  the  tax  commission  could  set  in  motion  it  was  necessary  to  ask 
the  county  boards  to  vote  funds  to  cover  the  cost  of  the  assess- 
ment. Half  of  the  counties  refused,  or  took  no  action,  and  the 
proceedings  halted.^ 

This  fundamental  administrative  defect  was  treated  quite 
inadequately  in  the  first  biennial  report,  which  was  signed  by  two 
members  only.  A  very  able  separate  report  on  the  whole  subject 
of  state  equalization  was  presented  by  the  third  member,  Judge 
Leser  of  Baltimore. ^  His  minority  recommendation  for  the 
estabhshment  of  a  state  board  of  equahzation,  by  giving  the  tax 
commission  authority  to  exercise  this  function,  and  the  intro- 
duction of  state-wide  equahzation  for  the  purpose  of  securing 
more  equitable  distribution  of  tax  burden,  is  the  soundest  pro- 
posal for  administrative  improvement  that  has  yet  come  from 
the  Maryland  commission. 

Although  Judge  Leser's  recommendation  has  not  yet  been 
adopted,  the  deadlock  has  been  broken  by  an  act  of  1916,  whereby 
the  commission  was  authorized  to  initiate  the  reassessment 
proceedings  necessary  for  compKance  with  the  law  of  1914.' 

The  confusion  and  defectiveness  of  the  tax  law  of  19 14  on  the 
subject  of  general  assessment  and  equahzation  are  counter- 
balanced by  relatively  greater  clearness  and  consistency  on  the 
subject  of  corporate  taxation.  For  the  one  there  had  been  no 
precedent  at  all  in  the  state,  and  outside  experience  had  appar- 
ently been  given  small  consideration;  for  the  other  there  had 
been  ample  local  experience,  and  the  existing  tendencies  in  the 
administration  of  corporate  taxation  were  carried  forward, 
though  with  some  marked  changes  in  the  details  of  that  system. 

It  is  unnecessary  to  say  more  of  the  early  system  of  taxing 
corporations  than  to  note  that  the  tendency,  especially  marked 
after  1840.  of  levying  taxes  on  capital  stock,  became  an  important 
feature  of  the  later  corporation  taxes.    The  assessment  of  these 

•  Mainland  Tax  Commission,  Report,  1915,  p.  10. 

*  Maryland  Tax  Commission,  Separate  Report  by  Oscar  Leser,  1916. 

'  Laus  of  Maryland,  1916,  ch.  629. 


550  THE  STATE  TAX  COMMISSION 

stocks  was  a  local  function  until  1878.  An  act  of  this  year, 
amended  in  1880,  codified  the  existing  legislation  on  the  subject 
and  provided  a  state  tax  commissioner  who  was  placed  in  general 
charge  of  such  taxes. ^  He  was  to  be  appointed  by  the  governor, 
treasurer,  and  comptroller,  or  a  majority  of  these,  for  a  term  of 
four  years  at  a  salary  of  $2500. 

The  provision  of  a  state  tax  commissioner  marked  the  begin- 
ning of  the  attempt  to  tax  the  corporate  excess  of  Maryland  cor- 
porations. The  commissioner's  powers  were  never  extensive  and 
his  findings  were  subject  to  review  by  the  treasurer  and  comp- 
troller of  state.  His  principal  duty  was  the  assessment,  for  state 
and  local  taxation,  of  all  corporation  stocks  liable  to  taxation  for 
such  purposes.  No  method  of  assessment  was  established  by  law 
beyond  the  provision  that  the  corporations  subject  to  the  meas- 
ure were  to  send  to  the  tax  commissioner  such  information  con- 
cerning their  respective  businesses  as  he  might  require;  and  the 
establishment  of  a  minimum  valuation  for  the  shares  at  the  full 
value  of  the  real  estate  and  personal  property.^  Different  deduc- 
tions, other  than  locally  assessed  value  of  real  estate,  were  allowed 
in  determining  the  assessment  of  the  stock  for  state  and  local 
purposes.  The  tax  commissioner  was  obliged  to  accept  the  cor- 
porations' returns  as  to  the  value  of  their  personal  property, 
while  a  court  decision  of  1906  required  that  corporate  real  estate 
be  assessed  for  municipal  purposes  at  the  same  rate  as  for  state 
purposes.^  This  frequently  meant  a  rank  discrimination  in  favor 
of  the  corporation  as  compared  with  the  individual  real  estate 
owner.  The  absence  of  an  adequate  system  of  state  registration 
of  corporations  previous  to  1908  meant  that  many  domestic  com- 
panies were  not  taxed  at  all.  In  general,  because  of  the  defects 
of  the  law  and  the  ineffective  methods  of  administration  em- 
ployed, the  taxation  of  corporations  in  Maryland  from  1878  to 
191 5  was  far  from  satisfactory.* 

^  Laws  of  Maryland,  1878,  ch.  178;  ibid.,  1880,  ch.  20. 

*  Ihid.,  1902,  ch.  468. 

*  The  case  is  cited  in  Maryland  Tax  Commission,  Report,  1915,  p.  270. 

^  Much  of  the  report  of  the  special  commission  of  1888  is  occupied  with  the 
question  of  corporation  taxation.  Cf.  also  Report  of  the  Maryland  Tax  Commis- 
sion, 1913,  pp.  265-310. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES       55 1 

The  special  tax  commission  of  19 13  had  condemned  both  the 
theory  and  the  practice  of  corporate  excess  taxation,  as  applied 
in  Maryland,  and  had  recommended  the  substitution  of  an  assess- 
ment of  the  corporate  assets  by  the  proposed  state  tax  commis- 
sion.^ The  general  intent  of  this  recommendation  was  observed 
in  the  corporation  tax  amendments  of  1914,  which  replaced  the 
state  assessment  of  shares  by  a  state  assessment  of  the  personal 
property,  except  securities,  with  apportionment  of  the  assessed 
valuation  according  to  the  residence  of  the  owners  of  the  stock. 
The  proportion  represented  by  foreign  held  shares  was  to  be  as- 
signed to  the  locality  containing  the  principal  place  of  business.* 
These  changes  applied  to  "  Ordinary  Business  Corporations,"  a 
new  classification  created  by  the  act  and  composed  of  all  corpora- 
tions except  public  utiUties  and  financial  companies  of  every 
sort. 

The  first  report  of  the  Maryland  tax  commission  contains  little 
reference  to  the  administrative  problems  which  were  here  thrust 
upon  it,  although  these  were  undoubtedly  numerous  and  impor- 
tant. More  attention  was  given  to  the  defects  of  the  tax  law,  but 
these  did  not  pass  beyond  the  suggestion  of  changes  required  in 
order  to  improve  the  existing  measure.^  The  fact  appears  to  be 
that  the  defects  of  this  law  for  the  taxation  of  private  business 
corporations  are  such  as  will  render  it  permanently  unsatisfac- 
tory. The  legislative  classification  is  confused ;  some  corporations 
appear  to  be  subject  to  taxation  under  this  and  also  under  other 
tax  laws.  The  administration  of  the  act  is  weakened  by  leaving 
the  assessment  of  securities  in  the  local  jurisdiction.  And  finally, 
though  these  defects  were  to  be  corrected,  the  principle  of  prop- 
erty taxation  here  introduced  does  not  appear  to  ofifer  the  most 
certain  and  equitable  access  to  corporate  taxable  capacity. 

The  freedom  from  rigid  constitutional  limitations  on  the  form 
of  the  tax  system  which  Maryland  has  always  enjoyed  permitted 
the  early  introduction  of  an  experiment  in  the  classification  of 

1  Report  of  the  Tax  Commission  of  Maryland,  1913,  pp.  265  ff. 

*  Laws  of  Maryland,  19 14,  ch.  324.  This  act  introduced  also  an  annual  gradu- 
ated franchise  tax  on  the  capital  stock  actually  issued  by  ordinary  business  cor- 
porations. 

'  Maryland  Tax  Commission,  Report,  191 5,  pp.  23  ff. 


552  THE  STATE  TAX  COMMISSION 

property  which  has  been  given  extensive  publicity.  In  1896 
certain  intangibles  were  set  aside  to  be  taxed  at  the  rate  of  three 
mills  on  the  dollar  for  local  purposes,  plus  the  rate  of  the  state  tax 
for  state  purposes.^  The  property  thus  taxed  includes  bonds  of 
corporations,  shares  of  stock  of  foreign  corporations,  and  all  cer- 
tificates of  indebtedness  held  by  residents  of  Maryland.  This  law, 
over  which  the  state  tax  commissioner  had  general  charge,  was 
effectively  administered  only  in  Baltimore  city  and  county.  The 
total  assessment  in  these  districts  in  1914  was  $241,762,000,  of 
which  $191,970,000  were  returned  from  the  city  of  Baltimore. 
The  total  assessment  for  the  state  in  1914  was  $253,387,000.^  The 
administration  of  this  tax  was  given  to  the  new  tax  commission, 
and  in  191 5  the  assessment  of  Baltimore  city  and  county  was 
increased  by  $17,891,000  and  of  the  remainder  of  the  state  by 
$13,640,000.  While  the  results  in  Baltimore  have  often  been 
cited  as  a  demonstration  of  the  advantage  of  the  low  flat  rate, 
there  is  good  reason  for  beheving  that  even  these  figures  represent 
only  a  fraction  of  the  total  of  such  property  held  in  the  state.  In 
1908  the  Advisory  Commission  on  Taxation  of  Baltimore  re- 
ported that  eight  corporations  returned  35.7  per  cent  of  the  total, 
ion  trust  companies  returned  18.3  per  cent,  and  2281  individuals 
returned  46  per  cent.  This  commission  concluded  that  these 
figures  could  mean  only  that  a  very  large  number  of  persons  were 
successfully  evading  even  this  low  tax  rate.  And  if  this  condition 
existed  in  Baltimore  with  its  efl&cient  assessment  organization,  in 
how  much  greater  degree  must  it  have  been  true  of  the  remainder 
of  the  state  ?  ^  The  experience  of  Minnesota  clearly  shows  the 
need  of  strong  and  alert  central  administration  of  the  low  flat  rate 
tax  on  intangibles  if  such  degree  of  taxation  is  to  be  reasonably 
successful.^ 

1  Laws  of  Maryland,  1896,  ch.  120. 

*  The  total  varies  according  to  the  state  or  local  assessment.  In  1915  the  state 
assessment  was  less  by  $63,880,000,  on  account  of  differences  in  the  return  from 
Baltimore  city  and  Cecil  county.  Maryland  Tax  Commission,  Report,  1915, 
pp.  88,  89. 

'  Report  of  the  Advisory  Committee  on  Taxation  and  Revenue,  1907,  p.  146. 

*  Cf.  above,  pp.  420,  421. 


TAX  COMMISSIONS  IN  THE  EASTERN  STATES      553 

No  significant  opportunities  have  yet  arisen  for  the  exercise  of 
the  supervisory  powers  conferred  upon  the  Maryland  tax  com- 
mission. Some  of  the  defects  of  the  new  law  on  this  point  have 
already  been  noted.  The  most  valuable  improvement,  perhaps, 
was  the  provision  for  a  county  supervisor  of  assessments  to  be 
appointed  by  the  tax  commission.  He  is  to  have  no  power  of 
original  assessment,  but  he  may  object  to  the  action  of  local 
assessors  in  any  new  assessment,  any  abatement,  or  any  failure  to 
make  correction  in  the  rolls,  by  taking  an  appeal  to  the  tax  com- 
mission. Considering  all  of  the  circumstances,  and  especially  the 
fact  that  the  commission  is  required  to  appoint  the  supervisor 
from  a  list  submitted  by  the  county  commissioners,  the  work  of 
these  assistants  has  been  satisfactory;  but  there  is  much  room 
for  improvement  as  the  machinery  and  point  of  view  of  central 
administration  become  more  familiar  throughout  the  state.  The 
commission's  principal  contribution  thus  far  has  been  that  of 
famiHarizing  the  people  with  the  new  method  of  administration. 
The  legislation  of  1914  was  revolutionary  for  Maryland  in  many 
respects,  and  had  been  preceded  by  so  Httle  of  educational  prop- 
aganda, that  the  attainment  of  a  high  degree  of  effectiveness  and 
leadership  in  tax  administration  must  necessarily  be  a  work  of 
time.  Progress  toward  both  of  these  ends  has  undoubtedly  been 
made  since  the  commission  was  created,  and  it  should  continue  as 
this  body  perfects,  through  experience,  the  law  it  was  created  to 
administer.^ 

'  The  first  biennial  report,  though  very  poorly  organized  and  quite  inadequate 
in  its  treatment  of  certain  subjects,  contains  numerous  suggestions  for  the  further 
amendment  of  the  law  or  its  administrative  features. 


554 


THE  STATE  TAX  COMMISSION 


APPENDIX  TO  CHAPTER  XVI 

Table  I.  —  Analysis  of  the  Assessments  of  Personal  Property  in 
New  Hampshire,  1911-16  (millions  of  dollars) 


Year 

1911 

1912 

1913 

1914 

1915 

1916 

/.  Tangibles 

Live  stock 

9.2 

2.1 
20.7 
26.1 

2.2 

11.6 

32.0 

44.2 

3-7 

12.4 

3-9 

32.9 

44.3 

6.4 

12.5 

4-5 

33-4 

44- S 

6.5 

12.3 

Vehicles (. .  . 

5.1 

Stock  in  trade 

33-5 

Mills,  factories,  machinery . . 
Other  tangibles 

48.3 
5.9 

Total  tangibles 

//.  Intangibles 

Money 

60.3 

3-4 
1.9 
3-6 

94.8 

15-0 
3.6 

3-4 

99.9 

8.9 
3-4 

101.4 

9.2 
3-1 
2>-3 

105.1 

8.7 

Public  bonds  corporation.  .  . 
Stock,  including  banks 

3-0 
3-3 

Total    

8.9 

22.0 

1S.6 

1S.6 

IS.O 

Grand  total 

69.2 

116.8 

iiS-5 

1 1 7.0 

I  20. 1 

Note:  The  schedule  of  items  has  not  been  uniform.  The  item  above,  "  other  tangibles,"  con- 
tains a  varying  list  of  classes  of  property.  The  only  corporation  stock  listed  after  1914  has  been 
national  bank  stock.    The  figures  for  1912  have  not  been  available  to  the  writer. 


Table  II.  —  Assessment  of  Real  Estate  and  Corporate  Property 
in  New  Hampshire  1911-16  (millions  of  dollars) 


Year 

1911 

1912 

1913 

1914 

191S 

1916 

Real  estate 

178.9 

34-4 

1.3 

1.9 

.1 

•3 

.07 

2.5 

3-3 

.2 

•5 
•4 

265.6 
48.1 

3-1 

3-6 

.2 

•5 
•4 

271.4 
37.8 

3-2 

3-9 

•3 
•3 

277.2 
38.8 

3-1 

4.1 

.2 

•3 

•3 

281.9 

Railroads 

39.8 

Street  railways 

3-2 

Telephone  companies 

Telegraph           "         

Express              "        

Car                     "         

4-4 
.2 

•4 
•3 

Total  corporations 

38.07 

55-9 

45-9 

46.8 

48.3 

Note:  The  statistics  published  by  the  New  Hampshire  Tax  Commission  are  not  entirely  clear, 
at  least  to  the  outsider.  The  assessed  valuation  of  railroads  is  given  in  two  places,  and  in  the  earlier 
reports,  especially  191 1,  these  figures  did  not  agree.  The  lesser  amount  is  given  above,  as  being 
more  in  harmony  with  subsequent  figures. 


CHAPTER  XVII 

STATE  TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES 
The  State  Tax  Commission  of  Alabama  * 

The  centralizing  movement  in  tax  administration  appeared  in 
Alabama  in  1885  with  the  creation  of  a  state  board  of  assessment 
for  certain  classes  of  corporations. ^  State  assessment  of  corpora- 
tions was  followed  by  central  control  over  local  assessments,  in 
1897,  ^^^  i^  recent  years  there  has  been  some  tendency  to  increase 
the  effectiveness  of  the  latter  though  these  efforts  have  been 
obstructed  by  a  fitful  and  inconsistent  legislative  policy.  State 
equalization,  which  has  usually  been  the  first  stage  of  administra- 
tive centralization,  did  not  appear  until  191 5,  although  the  con- 
dition of  assessments  would  have  warranted  its  introduction 
much  earlier. 

The  state  board  of  assessors  was  composed  of  the  governor, 
auditor,  secretary,  and  treasurer  of  state,  with  the  attorney- 
general  as  an  advisory  member  authorized  to  cast  the  deciding 
vote  in  the  event  of  tie.  This  board  was  required  to  value  the 
operating  property  of  railroads,  telegraph,  and  telephone  com- 
panies, using  for  this  purpose  the  average  market  value  of  the 
stocks  and  bonds  during  the  preceding  twelve  months,  together 
with  the  corporate  statements  as  to  the  amounts  invested  in  the 
properties,  and  the  information  returned  by  these  companies  to 
the  railroad  commission  for  rate-making  purposes.'  The  results 
of  corporate  assessment  by  the  state  board  of  assessors  have  not 

*  By  the  Laws  of  Alabama,  1915,  No.  464,  the  state  tax  commission  was  replaced 
by  a  state  board  of  equalization.  This  board  was  given  somewhat  greater  powers 
than  the  tax  commission  had  enjoyed  but  there  was  little  break  in  the  continuity 
of  central  tax  administration.  The  account  which  follows  is  confined  to  the  work 
of  the  state  tax  commission,  with  a  summary  of  the  new  law.    Cf.  below,  p.  561. 

'  Laws  of  Alabama,  1885,  No.  2. 

'  Revenue  Code  of  Alabama,  1908,  p.  53. 


556  TEE  STATE  TAX  COMMISSION 

been  available  to  the  writer  and  no  judgment  can  be  passed  upon 
them. 

The  second  stage  of  administrative  centralization  began  in 
1897,  with  the  establishment  of  the  office  of  state  tax  commis- 
sioner.^ The  new  official  was  given  supervision  over  the  county 
tax  commissioners  who  were  also  provided  by  the  act.  This 
administrative  machinery  was  designed  especially  to  check  the 
enormous  evasion  of  taxes,  the  county  tax  commissioners  being  in 
reahty  back  tax  investigators  and  collectors  who  were  paid  a 
percentage  of  the  taxes  recovered.  They  might  ferret  out  seques- 
tered property  and  list  it  for  five  years'  back  taxes,  or  they  could 
advance  the  assessment  of  any  property  after  the  close  of  the 
regular  assessment  season.  Their  jurisdiction  extended  also  to 
delinquent  Hcense  taxes.  The  state  tax  commissioner  was 
authorized  to  appoint,  with  the  consent  of  the  governor,  a  county 
tax  commissioner  in  each  county;  but  the  power  of  removal  was 
vested  in  the  governor  to  be  exercised  at  his  discretion.  The  state 
tax  commissioner  and  his  appointees  in  the  various  counties  were 
in  reality  state  agents  or  detectives  for  the  better  collection  of 
taxes  rather  than  administrative  officials  actually  supervising  the 
work  of  local  assessment;  they  were  gleaners  rather  than  reapers 
of  the  harvest.  In  fact,  the  state  tax  commissioner  had  no  super- 
visory authority  over  the  original  assessment  of  property  under 
the  act  of  1897. 

The  opportunity  for  a  greater  measure  of  state  supervision  over 
local  assessments  was  opened  in  1907  by  a  law  which  substituted 
for  the  state  tax  commissioner  a  commission  of  three  members, 
appointed  by  the  governor  for  four  years,  at  a  salary  of  $3000  for 
the  chairman  and  $2400  for  each  of  the  associate  members.^ 
Upon  this  body  was  conferred  general  supervision  over  the  whole 
tax  system,  including  the  drastic  recourse  of  ordering  reassess- 
ments. This  supervisory  control  was  considerably  strengthened, 
in  theory,  by  the  provision  that  the  valuations  of  the  commission 
in  reassessment  proceedings  could  not  be  lowered  later  except  with 
the  commission's  consent,  as  long  as  the  property  remained  in 
substantially  the  same  condition.    The  practical  value  of  this 

*  Laws  of  Alabama,  1897,  No.  204.  ^  Ibid.,  1907,  No.  337. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     557 

check  against  competitive  undervaluation  was  greatly  diminished 
by  various  forces  which  operated  against  the  exercise,  by  the 
commission,  of  the  right  of  reassessment. 

The  supervision  of  local  assessments  included  visits  to  the 
counties  for  the  purpose  of  instructing  the  assessors  and  inspect- 
ing their  work  and  the  direction  of  all  litigation  for  the  enforce- 
ment of  tax  laws.  In  recent  years  almost  every  county  was 
visited,  and  a  written  report  made  upon  the  condition  of  affairs. 
Synopses  of  these  reports  were  published  annually  after  191 2,  and 
they  reflect  the  difficulties  to  which  any  advisory  supervision  is 
exposed.  In  many  cases  the  investigator  reported  that  the 
assessor  seemed  competent  and  that  his  books  were  in  good  con- 
dition; but  in  numerous  other  counties  it  was  reported  that  tax 
matters  were  "  managed  very  irregularly  and  not  according  to 
law  in  many  respects.  ..."  In  Covington  county  in  191 2  the 
work  of  the  assessor  was  badly  behind  —  "  this  was  a  political 
year."  In  Henry  county  the  assessor  refused  to  cooperate  with 
the  commission's  agent  unless  the  increases  were  made  through 
the  county  tax  commissioner.  Jackson  county  was  reported  in 
bad  shape  and  no  efforts  or  persuasion  could  influence  the  taxing 
officials  to  make  an  increase  in  values,  though  they  admitted  that 
property  would  stand  an  increase.  These  conditions  were  found 
to  prevail  in  a  surprising  nimiber  of  instances.  In  general,  it  was 
found  that  the  county  tax  commissioners  were  more  of  a  hindrance 
than  a  help. 

The  results  of  the  commission's  efforts,  in  so  far  as  they  were 
reflected  in  the  assessment  of  property,  may  be  presented  here : 

Assessed  Valuation  of  Real  Estate,  1909-14 '  (miluons) 

Year                                    Lands  and  improvements  Lots  Total 

1909 $147-9  $132.6  $285.5 

1911 162.6  158.3  320.9 

1913 179-4  177-9  3S7-3 

1914 197-2  190-5  387-7 

During  this  period  the  aggregate  valuation  was  increased, 
roughly  speaking,  by  about  $100,000,000,  nearly  three-fifths  of 
which  was  made  upon  city  lots.   In  191 1  the  standard  of  assess- 

*  From  the  reports  of  the  Commission. 


558 


THE  STATE  TAX  COMMISSION 


ment  was  changed  from  loo  per  cent  to  60  per  cent  of  full  value, 
but  the  aggregate  assessment  of  real  estate  has  continued  to 
advance  notwithstanding  this  reduction  of  the  legal  standard.^ 

The  returns  of  personal  property  do  not  permit  a  satisfactory- 
classification  of  the  tangible  property,  and  no  attempt  wiU  be 
made  to  compare  this  class  with  the  intangible  property.  The 
real  test  of  the  efficiency  of  the  tax  system  is  to  be  found  in  the 
results  of  the  assessment  of  the  latter  and  the  figures  for  this  class 
will  be  given : 

Assessed  Valuation  of  Intangible  Property  in  Alabama,  1909-14* 

(millions) 


Class 

1909 

1910 

1911 

1912 

1913 

1914 

Money  on  hand  or  on  deposit.  . .  . 
Credits      

$1.9 
2.9 

12.7 
8.8 

$2.1 

12.9 
8.4 

•3 

$2.0 
3-0 

13-4 
6.5 
I.I 

$1.2 
2.8 

14-7 
7.8 
.12 

$0,958 
3-8 
14.9 
10.9 
.236 

$0,893 
19.1 

Bank  shares 

15.7 

Shares  of  corp'ns  except  banks . .  . 
Taxable  bonds     

13-7 
.20? 

Totals    

26.3 

26.2 

26.0 

26.6 

30.8 

40.6 

These  figures  require  little  comment.  The  result  occasions  no  sur- 
prise for  it  simply  adds  another  link  to  the  long  chain  of  evidence 
that  has  been  forged  about  the  general  property  tax  as  applied  to 
intangible  property.  The  presence  in  most  of  the  counties  of  a 
"  tax  ferret,"  for  the  county  tax  commissioner  was  virtually  such, 
was  not  sufficient  to  prevent  stagnation  of  the  assessment  of 
intangibles.  The  case  of  bonds  is  amusing.  The  total  seems 
ridiculously  small  even  in  191 1,  but  in  this  year  the  abnormal 
increase  was  due  to  the  return  of  over  $800,000  from  one  county. 
No  bonds  had  been  returned  from  this  county  in  19 10  and  the 
amount  listed  in  191 2  dropped  to  $8000.^  On  the  other  hand, 
among  the  items  of  tangible  property  which  do  not  consist  of 
unrelated  totals,  the  universal  tendency  toward  relative  over- 
assessment  of  farm  animals  and  unproductive  consumers'  goods 

1  Laws  of  Alabama,  1911,  No.  216. 

2  From  the  annual  reports  of  the  tax  commission. 
^  Alabama  Tax  Commission,  Report,  1912,  p.  116. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     559 

has  been  in  operation.  Goods,  wares,  and  merchandise  have  been 
decreasing.  The  significant  increase  of  credits  in  19 14  was  due  to 
the  sudden  resolve  on  the  part  of  the  tax  commission  to  enforce 
the  law  at  this  point.  A  decision  of  1906  had  nullified  the  law  of 
that  day  providing  for  the  taxation  of  credits.^  The  commis- 
sion awakened  in  19 14  to  the  fact  that  the  tax  law  had  been 
changed.  Its  validity  was  established  in  test  cases,  and  the  com- 
mission proceeded  to  make  a  considerable  increase  in  the  assess- 
ment of  this  class  of  property.  The  proper  return  was  estimated 
at  about  $50,000,000  annually,  and  it  was  hoped  that  this  figure 
would  be  reached  in  a  few  years.^  This  effort  will  not  be  made 
for  credits  were  exempted  in  19 15.' 

The  personal  property  figures  do  not,  however,  present  the 
supervisory  activity  of  the  Alabama  tax  commission  in  its  most 
favorable  aspect.  It  was  able  to  secure,  year  by  year,  substantial 
increase  in  the  total  volume  of  assessments,  in  part  through  the 
exercise  of  its  right  of  reassessment,  but  for  the  greater  portion 
through  the  work  of  the  county  tax  commissioners.  The  former 
state  tax  commissioner  had  added  only  a  few  thousands  of  dollars 
each  year  in  this  way,  but  after  1907  the  tax  commission  regularly 
added  from  $10,000,000  to  more  than  $20,000,000  annually.  The 
amounts  varied  widely  at  different  times  with  some  tendency 
toward  a  decline  in  recent  years.  The  principal  cause  for  this 
fluctuation  was  probably  the  varying  responsiveness  of  the  county 
tax  commissioners  to  the  appeals  and  suggestions  of  the  tax  com- 
mission. Though  these  officials  were  appointed  by  the  tax  com- 
mission they  were  not  always  loyal  supporters  of  its  pohcies;  and 
state  supervision  of  local  assessments  really  consisted  of  a 
struggle,  or  better,  a  game  between  the  taxpayer,  aided  and 
abetted  by  the  local  assessor  and  the  county  tax  commissioner, 
and  the  state  tax  commission.  Revision  of  the  local  assessment 
roll  might  be  undertaken  by  the  county  tax  commissioner,  who 
was  privileged  to  add  the  back  taxes  for  five  years  and  to  increase 
the  valuation  of  underassessed  property.  The  tax  commission 
might  also  revise  local  assessments  by  conducting  reassessments 

'  Alabama  Tax  Commission,  Report,  1914,  p.  8. 

'  Ibid.,  1914,  pp.  7-9.  *  Laws  of  Alabama,  1915,  No.  58. 


560  TEE  STATE  TAX  COMMISSION 

either  through  the  county  tax  commissioners  or  through  its  own 
special  agents. 

These  peculiarities  of  the  Alabama  system  made  it  exceedingly 
difficult  to  hold  up  the  standards  of  the  local  assessors.  The  prac- 
tice of  paying  the  county  tax  commissioner  a  percentage  of  the 
taxes  recovered  gave  that  official  a  decided  preference  for  under- 
valuation and  evasion  in  the  original  assessments.  The  tax  com- 
mission was  unable  to  overcome  this  attitude  of  the  county 
officers  because  of  the  control  of  these  officials  by  the  governor, 
who  might  remove  them  at  will.  On  the  other  hand,  the  com- 
mission's efforts  to  conduct  reassessments  through  its  own  special 
agents  were  blocked  by  those  who  were  interested  in  allowing  the 
county  tax  commissioners  to  glean  the  assessors'  harvest.^  The 
governor's  power  over  the  whole  administrative  machinery  was 
made  absolute  in  191 1  by  an  amendment  authorizing  him  to 
remove  any  or  all  of  the  members  of  the  tax  commission  at  any 
time  without  cause.^  This  opposition  of  interests  has  prevented 
the  Alabama  commission  from  achieving  results  in  local  super- 
vision commensurate  with  its  powers  of  supervisory  direction.  In 
1910  it  proposed  the  transfer  of  the  control  over  the  county  tax 
commissioners  into  its  own  hands,  but  the  bill  was  defeated  and 
the  penalty  for  this  piece  of  temerity  was  the  jeopardizing  of  the 
commission's  position  by  the  amendment  of  191 1. 

Effective  tax  administration  has  been  hindered  in  Alabama  by 
this  division  of  authority  over  the  assessment  process,  a  policy 
which  was  introduced  as  well  into  the  assessment  of  corporations. 
The  first  step  in  this  direction  was  the  retention  of  the  state  board 
of  assessors  for  the  assessment  of  corporations,  after  the  creation 
of  the  tax  commission.  The  transfer  of  this  function  to  the  tax 
commission  would  have  been  more  logical,  and  in  better  accord 
with  the  modern  practice;  ^  but  since  this  was  not  done,  logic  as 
well  as  efficiency  demanded  that  the  whole  assessment  of  cor- 
porations be  centraKzed  with  one  state  board.  Instead  of  pur- 
suing the  logical  course,  however,  the  Alabama  legislature  copied 

*  Interview  with  W.  R.  Lloyd,  Secretary  to  the  Commission,  September,  191 1. 

^  Laws  of  Alabama,  1911,  No.  216. 

3  The  Commission  recommended  this  in  1914,  Report,  p.  11. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     56 1 

the  Texas  law  for  the  taxation  of  franchises  and  intangible  assets 
of  public  service  companies.^  The  tax  applied  also  to  some  classes 
of  corporations  that  were  not  assessed  by  the  board  of  assessors; 
but  in  so  far  as  the  same  corporations  were  subject  to  the  state 
assessment  and  to  the  franchise  tax,  a  most  absurd  anomaly 
arose.  The  intangible  assets  law  provided  that  the  tax  commis- 
sion should  take  the  total  market  value  of  the  stocks  and 
bonds  as  the  true  cash  value  of  the  property,  tangible  and  intan- 
gible ;  and  the  taxable  value  of  the  franchise  and  intangible  prop- 
erty was  to  be  the  difference  between  the  valuation  of  the  entire 
property  as  determined  by  the  tax  commission  and  the  assessed 
valuation  of  the  tangible  property  as  fixed  by  the  board  of  asses- 
sors. But  the  chief  criterion  of  the  value  of  the  tangible  property 
was  also  to  be  the  market  value  of  the  stocks  and  bonds,  as  this 
was  ascertained  by  the  latter  board. ^  In  other  words,  the  tax 
commission  was  expected  to  deduct  the  valuation  of  the  tangible 
property  of  the  railroads,  as  obtained  from  the  market  value  of 
the  stocks  and  bonds,  from  the  total  value  of  all  railroad  prop- 
erty, also  obtained  from  the  market  value  of  the  stocks  and  bonds, 
and  obtain  a  residue  which  should  be  called  the  value  of  the 
franchise  and  intangible  assets. 

The  most  significant  recent  extension  of  the  Alabama  com- 
mission's activities  was  the  estabHshment  of  a  branch  office  at 
Birmingham.  This  office  was  designed  primarily  for  the  collec- 
tion of  data  relative  to  mines  and  mineral  resources,  which  are 
still  taxable  locally.  The  work  of  mapping,  Hsting,  and  classifying 
these  resources  was  begun  although  no  such  systematic  and  com- 
prehensive survey  was  undertaken  as  those  of  Minnesota  and 
Michigan.  The  Birmingham  office  rendered  valuable  aid  in  other 
ways,  especially  in  its  pioneer  attempts  at  statistical  analysis  and 
interpretation  of  the  state's  financial  condition.^ 

The  act  of  191 5  changes  the  title  of  the  state  tax  board  to 
"  State  Board  of  Equalization,"  which,  it  provides,  shall  consist 
of  three  persons  known  to  be  possessed  of  skill  and  knowledge  in 

^  Laws  of  Alabama,  1907,  No.  284. 
^  Code  of  Alabama,  1907,  i,  §  2141. 
'  Alabama  Tax  Commission,  Report,  1914,  pp.  47-57,  with  diagrams. 


562  THE  STATE  TAX  COMMISSION 

matters  pertaining  to  taxation.^  These  members  are  to  be 
appointed  by  the  governor  for  a  term  of  six  years,  at  a  salary  of 
$3000.  They  are  to  exercise  general  supervision  over  the  tax 
system,  to  equaUze  by  comparing  the  county  totals  and  ordering 
the  county  boards  to  reequaHze  in  accordance  with  percentages 
fixed  by  the  state  board,  to  assess  the  tangible  property  and  the 
intangible  assets  of  all  public  utilities.  The  pernicious  provision 
from  the  Georgia  statute  relating  to  arbitration  ^  was  introduced 
by  authorizing  the  county  boards  to  demand  an  arbitration  in 
case  they  were  displeased  with  the  state  board's  decision.  The 
arbitrators  may  not  extend  their  session  beyond  five  days,  and 
must  reach  a  decision  in  twenty  days.  This  rule  makes  it  possible 
for  the  local  boards  to  block  every  progressive  action  taken  by  the 
central  board,  and  it  is  highly  unfortunate  that  such  a  practice 
was  made  possible.  It  is  a  very  incongruous  feature  of  a  tax  law 
purporting  to  improve  the  administration  of  the  revenue  system. 

The  State  Tax  Board  of  Texas' 

Centralized  tax  administration  has  made  but  little  progress  in 
Texas  and  such  development  as  has  occurred  has  been  piecemeal 
and  fragmentary.  The  constitution  of  1876  contained  a  new 
article  which  authorized  the  legislature  to  provide  for  the  equaK- 
zation  of  assessed  valuations.^  No  general  equalization  board  was 
ever  estabHshed  under  this  provision,  but  in  1879  the  machinery 
of  county  equaHzation  was  set  up.^  For  unorganized  counties  this 
task  was  to  be  performed  by  the  governor,  attorney-general,  and 
secretary  of  state. 

The  local  undervaluation  and  evasion  which  had  compelled 
the  establishment  of  these  boards  were  not  checked  by  them. 
Throughout  the  history  of  the  state,  the  use  of  a  direct  state  tax 
has  led  to  local  competitive  undervaluation  and  evasion.  As  in 
several  other  states,  the  administration  of  the  school  fund  has 
distinctly  encouraged  these  demoraHzing  practices.    In  19 14  the 

1  Laws  of  Alabama,  1915,  No.  464.  ^  Cf.  below,  p.  583. 

'  Cf.  E.  T.  Miller,  A  Financial  History  of  Texas,  for  valuable  historical  materiaL 

*  Constitution  of  Texas,  1876,  Article  8,  §  18.    Cf.  Miller,  op.  cit.,  p.  210. 

*  Laws  of  Texas,  1879,  ch.  47. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     563 

school  funds  available  for  local  distribution  included  about 
$3,000,000  of  interest  from  invested  funds  and  income  from 
leased  lands,  and  about  $5,000,000  from  taxes.  But  in  this  year 
seventy-five  counties  did  not  receive  a  single  dollar  of  the  income 
from  the  permanent  school  fund  of  the  state,  because  their  school 
taxes  exceeded  their  total  allotment  from  both  sources  of  revenue 
for  school  purposes.^  The  tax  commissioner  has  several  times  sub- 
mitted data  to  show  that  this  condition  is  a  result  of  the  lack  of  a 
proper  state  equaHzation,  and  he  has  recommended  a  state  board 
of  equalization  and  a  state  tax  commission  with  proper  powers  of 
correction  and  supervision. ^  As  yet  no  attention  has  been  paid  to 
these  suggestions. 

After  the  establishment  of  county  equalization  in  1879,  the 
only  other  administrative  change  until  the  creation  of  the  state 
tax  board  in  1905  was  the  introduction  of  the  ofl5ce  of  state 
revenue  agent  in  1891.  This  office  was  estabhshed  for  the  pur- 
pose of  "  securing  a  better  enforcement  of  the  revenue  laws  of  the 
state,"  but  in  actual  fact  the  state  revenue  agent  has  given  his 
attention  principally  to  the  enforcement  of  certain  taxes  on 
business,  notably  the  occupation  taxes.' 

The  special  tax  commission  which  reported  in  1899  ^^.d  pro- 
posed the  taxation  of  the  intangible  assets  of  certain  classes  of 
corporations,  but  because  of  its  belief  that  a  state  board  for  the 
purpose  would  be  unconstitutional  it  recommended  the  exceed- 
ingly clumsy  device  of  a  stock  and  bond  valuation  by  the  various 
county  assessors.'*  Just  how  this  method  would  have  resulted  in 
more  uniform  railroad  assessments  the  authors  of  the  scheme 
failed  to  demonstrate.  The  local  assessment  of  corporate  excess 
was  plainly  absurd,  and  in  1905  a  state  tax  board  was  established 
for  this  purpose.^  This  board  was  composed  of  the  comptroller 
and  the  secretary  of  state,  and  a  state  tax  commissioner,  the 
latter  being  appointed  by  the  governor  for  a  term  of  two  years  at 
a  salary  of  $2000.    The  ex  officio  members  have  been  the  same 

1  State  Tax  Commissioner  of  Texas,  Report,  1914,  pp.  46-51,  95-98. 

*  Ibid.,  1912,  p.  13;  ibid.,  1914,  pp.  51,  52. 

'  Laws  of  Texas,  1891,  ch.  69.    Cf.  Miller,  op.  cil.,  p.  266. 

*  Report  of  the  Tax  Commission  of  Texas,  1899,  pp.  47,  175,  176. 
^  Laws  of  Texas,  1905,  ch.  146. 


564  THE  STATE  TAX  COMMISSION 

sort  of  useless  adjunct  in  Texas  that  they  have  proved  to  be  else- 
where. In  1914  the  tax  commissioner  stated  that  the  other  two 
members  had  been  crowded  for  sufficient  time  even  to  examine  the 
data  which  he  had  collected  for  the  assessment  of  corporate 
excess.^ 

The  new  method  of  reaching  corporate  taxable  capacity  was 
applied  at  the  outset  to  practically  every  sort  of  public  utiHty 
company,  and  it  was  made  an  alternative  tax  with  the  taxes  on 
gross  receipts  which  these  companies  had  been  paying.  The  cor- 
porations were  virtually  given  an  option,  and  practically  all  of 
them  except  the  railroads  chose  the  tax  on  gross  receipts.  Be- 
cause of  this  fact  and  the  difficulty  of  determining  the  intangible 
value  of  many  of  the  corporations  originally  subjected  to  this 
law,  an  amendment  of  1907  withdrew  the  tax  on  intangible  assets 
from  all  corporations  but  the  railroads,  ferry,  bridge,  turnpike, 
and  toll  companies. 2 

The  act  of  1905  apparently  favored  the  stock  and  bond  valua- 
tion as  a  means  of  ascertaining  the  total  value  of  the  corporation, 
but  the  board  was  left  free  to  adopt  any  other  method  which 
might  be  regarded  as  superior  to  that  suggested  in  the  statute. 
The  statutory  suggestions  have  been  followed,  however,  and  the 
blanks  used  by  the  board  in  collecting  the  data  call  only  for  such 
information  as  would  be  required  for  a  stock  and  bond  valuation, 
together  with  the  facts  necessary  for  apportioning  the  assess- 
ments among  the  counties.  The  suggestion  was  advanced  very 
briefly  and  rather  indirectly,  in  1916,  that  net  earnings  have  been 
regarded  as  a  significant,  though  not  the  only  factor,  in  the  assess- 
ment of  the  intangible  assets.  The  decline  in  railroad  net  earn- 
ings in  Texas  since  the  war  began,  and  especially  of  those  with 
Houston,  Galveston,  or  Mexico  as  objective  points,  has  been 
reflected  in  the  reduced  assessments.^ 

Under  the  circumstances,  the  stock  and  bond  valuation  is  per- 
haps the  most  serviceable  method  that  could  be  used  by  the  Texas 
board.  As  compared  with  other  methods  of  valuation,  the  respon- 

^  State  Tax  Commissioner  of  Texas,  Report,  1914,  p.  52. 

^  Laws  of  Texas,  1907,  ch.  171. 

'  State  Tax  Commissioner  of  Texas,  Report,  1916,  pp.  15-17. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     565 

sibility  of  the  administrative  officers  is  reduced  to  the  minimum 
in  using  this  method.  Especially  is  this  true  when,  as  is  the  case 
in  Texas,  chief  reliance  must  be  placed  upon  the  returns  of  the 
corporations  themselves  concerning  the  market  values  of  stocks 
and  bonds.  The  appropriations  for  the  tax  board  have  been  too 
small  to  permit  any  extensive  compilation  of  data  upon  which  to 
form  an  independent  estimate  of  the  value  of  corporate  securities, 
if  such  a  check  were  desired. 

This  system  of  taxing  the  corporate  excess  differs  in  impor- 
tant respects  from  that  employed  in  several  other  states.  The 
chief  point  of  difference,  perhaps,  is  in  the  method  of  deter- 
mining the  amount  of  excess,  or  of  intangible  assets.  The 
usual  practice  is  to  deduct  from  the  total  valuation,  as  ascer- 
tained by  a  state  official,  the  locally  assessed  valuation  of  certain 
classes  of  property.  In  Texas  the  state  tax  board  determines 
both  the  total  valuation  and  the  value  of  the  tangible  prop- 
erty which  is  to  be  deducted  therefrom  in  the  process  of  calculat- 
ing the  intangible  excess.  Judging  from  the  blank  forms  used  by 
the  Texas  board,  the  only  data  available  in  the  determination  of 
the  value  of  the  tangible  property  are  the  locally  assessed  valua- 
tions and  the  companies'  estimates  of  true  value.  The  proximity 
of  the  board's  appropriation  to  the  vanishing  point  prevents  any 
other  collection  of  material,  and  its  final  results  are  necessarily  in 
the  nature  of  a  compromise  between  these  returns  from  two  inde- 
pendent sources.  The  board  is  apparently  not  bound  to  deduct 
simply  the  assessed  value  of  tangible  property  from  the  total 
valuation,  and  to  the  extent  that  it  can  be  influenced  to  accept 
a  higher  valuation  than  that  of  the  local  assessors  the  corpora- 
tions are  benefited,  since  the  intangible  assets  are  distributed 
locally  on  the  basis  of  mileage  in  the  case  of  railroads,  and  on  the 
basis  of  receipts  in  the  case  of  the  other  corporations.  The  cor- 
porations are  therefore  under  the  temptation  of  overvaluing  the 
physical  property  in  their  returns  and  their  efforts  in  this  direc- 
tion appear  to  have  been  somewhat  rewarded.' 

Considerable  variations  have  occurred  between  the  valuation 
of  the  tangible  property  of  the  railroads  by  the  railroad  com- 

1  State  Tax  Commissioner  of  Texas,  Report,  1908,  p.  18. 


566  THE  STATE  TAX  COMMISSION 

mission  for  rate-making  purposes  and  the  state  tax  board  for 
purposes  of  taxation.  There  is  no  necessity  of  agreement  between 
these  two  valuations,  as  the  generally  accepted  principle  now 
appears  to  be  that  any  valuation  is  meaningless  except  for  specific 
purposes.  While  the  figures  of  the  two  boards  are  not  strictly 
comparable  because  of  differences  in  the  mileage  included  and 
some  differences  in  the  amount  of  property  considered,  yet  the 
results  seem  to  indicate  that  the  tax  board  has  used  a  somewhat 
higher  basis  of  valuation.  In  1908  the  latter's  valuation  of  the 
tangible  property  exceeded  that  of  the  railroad  commission  by 
$27,297,873.1 

The  results  of  the  introduction  of  the  new  method  of  taxation 
may  best  be  seen  from  the  railroad  assessments.  In  1906  the 
total  valuation  of  railroad  property,  tangible  and  intangible,  was 
$131,753,766,  or  an  average  value  of  $10,418  per  mile.  In  1907 
this  total  was  advanced  to  $280,584,110,  or  $20,924  per  mile.  In 
1916  the  total  value  of  the  railroads  was  put  at  $481,621,875,  of 
which  $156,367,966  was  assessed  as  intangible  values.  The  high 
point  in  the  assessment  of  intangible  assets  was  reached  in  19 10, 
with  a  total  of  $174,847,000.  The  diminishing  margin  of  earnings 
since  that  time  is  reflected  in  the  decline  in  values.^ 

At  one  point  the  Texas  statute  appears  to  give  the  board  a 
Hmited  supervisory  authority  over  local  assessments.  Section 
four  of  the  act  of  1905  provides,  among  other  things,  that  the 
board  shall  have  authority  to  examine  books,  papers,  and 
accounts,  and  to  interrogate  witnesses  under  oath  "  for  the  pur- 
pose of  obtaining  or  acquiring  any  and  all  information  that  may 
in  any  manner  aid  in  securing  a  compliance  with  any  tax  law  or 
revenue  law  of  this  state.  ..." 

Whatever  the  intent  of  this  provision,  it  has  been  practically  a 
dead  letter  because  of  the  lack  of  funds.  The  tax  commissioner 
has  compiled  certain  data  from  the  state  records  concerning  the 
stock  and  bond  values  of  the  local  public  utilities  and  submitted 
them  to  the  local  assessors.  There  has  been,  of  course,  no  power 
to   compel   consideration   of   such   material.     The   exceedingly 

*  State  Tax  Commissioner  of  Texas,  Report,  1908,  p.  19. 

*  Cf.  the  figures  published  in  the  various  annual  Reports. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     567 

limited  scope  of  the  board's  authority  is  seen  from  the  treatment 
of  its  first  certifications  of  intangible  assets.  Out  of  the  aggregate 
assessments  of  such  assets  in  1906  amounting  to  $161,237,000, 
only  $31,499,000  were  extended  upon  the  tax  rolls  by  the  local 
assessors.^  This  difficulty  was  met  by  the  amendment  of  1907 
which  required  the  local  officials  to  extend  upon  the  tax  rolls 
without  change  the  valuations  as  certified  to  them  by  the  state 
board. 

This  amendment  introduced  another  difficulty,  however,  which 
throws  the  inadequate  corrective  and  supervisory  powers  of  the 
Texas  tax  board  into  quite  as  strong  relief  as  before.  The  intan- 
gible assets  were  listed  at  approximately  full  value  while  the 
property  locally  assessed  was  heavily  undervalued.  In  the  first 
case  brought  to  test  the  equity  of  this  practice  the  court  sustained 
it  and  denied  relief  to  the  appellants.-  The  principal  ground  for 
this  decision  was  that  intangible  assets  have  no  situs  in  any  county 
and  are  not  therefore  to  be  considered  in  applying  the  constitu- 
tional rule  that  all  property  must  be  assessed  in  the  county 
where  situated.  It  is  easy  to  see  that  such  a  rule  might  cause 
embarrassment  if  applied  to  the  intangibles  owned  by  individuals. 
The  court  was  inclined  also  to  insist  upon  that  most  baseless  of 
fictions,  the  assumption  that  the  local  officials  had  obeyed  the  law 
and  assessed  all  property  in  their  jurisdictions  at  full  value.  In 
subsequent  cases  judicial  cognizance  was  taken  of  the  local  under- 
valuation of  property;  and  while  intangible  assets  were  held  not 
to  have  a  situs  in  any  county,  the  equahzation  of  the  assessment 
of  such  assets  to  the  same  basis  of  full  value  as  that  used  for  other 
property  was  admitted  to  be  a  proper,  and  under  the  circum- 
stances the  most  feasible,  interpretation  of  the  constitutional 
rule  of  uniform  taxation.^ 

In  rendering  this  verdict,  so  in  accord  with  sound  principles, 
there  appeared  to  be  no  reahzation  of  the  administrative  diffi- 

'  State  Tax  Commissioner  of  Texas,  Report,  1908,  p.  5. 

^  Missouri  Kansas  and  Texas  Railway  Company  v.  O.  K.  Shannon,  el.  al.,  100 
Texas,  379. 

'  Lively  v.  Missouri  Kansas  and  Texas  Railway  Company,  102  Texas,  549;  Mis- 
souri Kansas  and  Texas  Railway  Company  v.  Kone,  122  5.  W.  Rep.  424;  Missouri 
Kansas  and  Texas  Railway  Company  v.  Hassell,  57  Texas  Civil  Appeals,  522. 


568  THE  STATE  TAX  COMMISSION 

culties  which  its  proper  enforcement  would  involve.  In  all  of  the 
cases  brought  to  test  the  question,  certain  percentages  of  true 
value  were  freely  referred  to,  as  if  they  were  common  knowledge 
and  perfectly  well  estabhshed.  Thus,  Dallas  county  was  said  to 
be  assessed  at  66f  per  cent,  Grayson  county  at  75  per  cent.  But 
those  who  have  had  most  to  do  with  the  task  of  equalization 
know  best  that  the  true  percentage  of  full  value  which  the  assessor 
has  used  is  not  ascertained  so  easily,  and  that  as  a  rule  about  the 
most  worthless  testimony  on  the  subject  is  that  of  the  assessor 
himself.  The  court  has  really  saddled  the  state  tax  board  with  a 
duty  for  the  adequate  performance  of  which  it  is  wholly  unpre- 
pared. It  can  be  properly  performed  only  by  bringing  the  whole 
tax  system  under  such  degree  of  uniform  central  administration 
as  will  permit  of  an  equitable  equalization  or  adjustment  of  the 
common  tax  burden  upon  the  whole  group  of  taxpayers,  corporate 
and  individual. 

The  tax  commissioner  has  frequently  recommended  such  an 
extension  of  the  administrative  organization  of  the  Texas  tax 
system.  The  legislature  has  not  only  ignored  these  recommenda- 
tions; it  has  been  exceedingly  niggardly  with  the  present  tax 
board  and  has  been  unwilling  to  vote  a  sufl&cient  sum  to  insure 
the  proper  performance  of  such  duties  as  this  board  has  been 
required  to  perform.  The  tax  commissioner  has  paid  the  expense 
of  a  visit  to  a  few  counties  from  a  small  contingent  fund,  and 
expressed  the  belief  that  a  proper  comphance  with  this  provision 
from  section  four  (quoted  above)  would  result  in  the  addition  of 
millions  of  valuation  to  the  dupHcate  of  the  state.  This  appeal 
was  disregarded,  and  in  191 2  the  commissioner  reported  that  no 
money  was  available  to  pay  express  charges  upon  copies  of  the 
laws  of  other  states,  notwithstanding  the  requirement  that  he 
study  the  tax  systems  of  other  states  and  recommend  changes  in 
the  Texas  laws.^  For  the  years  1909-11,  inclusive,  no  annual 
reports  were  published  because  of  insufficient  funds.  The  extreme 
depths  of  penuriousness  have  been  sounded  in  the  matter  of 
office  equipment,  as  the  following  description  of  his  pHght  by  the 
tax  commissioner  in  1908  shows:  ^ 

^  Texas  Tax  Commissioner,  Report,  1912,  p.  18.  *  Ihid.,  1908,  p.  26. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     569 

When  the  present  Tax  Commissioner  assumed  the  chairmanship  of  the 
State  Tax  Board  he  found  a  department  of  the  State  government  which 
was  clothed  with  far-reaching  authority  but  absolutely  unequipped  for  the 
discharge  of  its  duties.  A  discarded  office  desk  was  borrowed  from  the  Attor- 
ney-general, an  old  typewriter  and  unused  type-writer's  desk  was  kindly  fur- 
nished by  the  Secretary  of  State,  chairs  were  secured  from  the  Superintendent 
of  Buildings  and  Ground  under  promise  to  return  them  when  called  for,  one 
filing  case  was  generously  loaned  by  the  Chief  Executive  of  the  State  while 
another  was  constructed  out  of  pine  boards  at  the  expense  of  the  Tax  Com- 
missioner and  an  adding  machine  was  placed  at  the  disposal  of  the  Board 
by  a  kindly  disposed  San  Antonio  firm.  With  these  equipments  the  State 
Tax  Board  proceeded  with  its  duties,  and  in  1908  added  to  the  State  and 
county  available  revenues  more  than  a  million  and  a  half  dollars. 

There  has  been  no  change  in  this  closefisted  policy.  In  19 14  the 
tax  commissioner  visited  three  counties  and  spent  $45.45  in 
travelling  expenses.  The  total  appropriation,  in  addition  to 
salary,  for  1914  was  $1972.^ 

The  State  Tax  Commission  of  North  Carolina 

The  first  phase  of  central  tax  administration  to  receive  atten- 
tion in  North  CaroHna  was  that  of  corporate  taxation.  The 
earhest  special  method  of  taxing  corporations  in  this  state  had 
been  by  means  of  excise  or  hcense  taxes  on  gross  earnings.^  The 
administration  of  these  taxes  was  usually  entrusted  to  the  state 
treasurer,  to  whom  were  made  the  returns  upon  which  the  tax 
was  calculated  and  by  whom  the  tax  was  collected.  The  taxes  on 
gross  earnings  were  abandoned  in  1889  for  an  ad  valorem  system, 
and  a  state  board  of  railroad  commissioners  was  created  to  make 
the  valuation  of  corporate  property.  Practically  all  of  the  public 
utiUty  corporations  were  included  under  this  act.^  A  decade  later 
the  board  of  railroad  commissioners  was  replaced  by  a  state 
corporation  commission,  to  which  the  function  of  corporate 
assessment  also  passed.^ 

Central  assessment  of  corporations  was  followed,  in  1901,  by 
the  introduction  of  central  supervision  of  the  local  assessments. 

'  Texas  Tax  Commissioner,  Report,  1914,  p.  57. 

*  E.  g.,  Laws  of  Nor  I  h  Carolina,  1876-77,  ch.  156. 
3  Ibid.,  1889,  ch.  218. 

*  Ibid.,  1899,  ch.  164.  The  members  of  the  corporation  commission  are  elected 
for  a  six-year  term  by  popular  vote. 


570  THE  STATE  TAX  COMMISSION 

The  corporation  commission  was  designated  a  state  board  of  tax 
commissioners,  and  its  members  were  each  allowed  $500  addi- 
tional salary  for  performing  the  duties  of  the  second  oflSce.^  The 
tax  commission  was  to  exercise  general  supervision  over  the  tax 
system  by  advising  and  instructing  assessors,  by  hearing  com- 
plaints, by  visiting  the  counties,  and  correcting  the  tax  lists.  In 
its  discretion  it  might  order  a  general  review  of  the  tax  rolls.  No 
further  provision  for  equaHzation  was  made  at  this  time;  but  in 
1907  a  state  board  of  equalization  was  estabhshed,  consisting  of 
the  elective  state  officers.^  This  board  was  to  equalize  the 
quadrennial  assessment  of  real  estate,  but  it  was  not  authorized 
to  reduce  the  local  aggregate  nor  could  it  order  more  than  a  10 
per  cent  increase  in  that  total.  This  unwise  division  of  the  tax 
administrative  forces  was  corrected  in  191 1  by  transferring  the 
function  of  state  equalization  to  the  state  tax  commission.' 

The  explanation  for  this  administrative  development  is  to  be 
found  in  the  defective  operation  of  that  basic  feature  of  the  North 
Carolina  tax  system,  the  general  property  tax.  While  it  has  per- 
haps been  true  that  in  general  the  southern  states  did  not  develop 
the  property  tax  as  early  or  in  the  same  degree  as  did  many 
northern  states,  yet  in  North  Carohna  the  general  property  tax 
has  been  for  many  years  of  steadily  increasing  fiscal  importance. 
By  the  end  of  the  nineteenth  century,  over  two-thirds  of  the  state 
revenue,  more  than  one-half  of  the  school  funds,  and  the  larger 
part  of  county  and  municipal  receipts  were  derived  from  this 
source.*  Naturally,  with  a  system  of  locally  administered  prop- 
erty taxes,  the  defects  characteristic  of  such  a  system  might  be 
expected  to  appear.  All  of  the  available  evidence  indicates  this 
result.  In  its  first  report  the  commission  advocated  separation  of 
the  sources  of  revenue  in  order  to  encourage  more  complete  listing 
by  reducing  the  rates  on  property.^  After  five  years  of  supervision 
it  made  the  following  admission  in  1906:  * 

'  Laws  of  North  Carolina,  1901,  ch.  7. 

*  Ibid.,  1907,  ch.  261. 
^  Ibid.,  1911,  ch.  50. 

*  G.  E.  Barnett,  Taxation  in  North  Carolina,  p.  88. 

*  Tax  Commission  of  North  CaroUna,  Report,  1902,  pp.  11-14. 

*  Ibid.,  1906,  p.  vi. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     57 1 

We  believe  that  there  is  more  equal  assessment  of  property  and  that  less 
property  escaped  taxation  than  heretofore;  still  it  must  be  confessed  that 
there  is  stiU  great  inequality  in  assessments  in  different  counties  and  even 
in  different  townships  of  the  same  county. 

The  published  reports  of  the  tax  commission,  practically  the 
only  source  of  information  available  to  the  writer,  contain  very 
little  material  that  would  enlighten  the  outsider  regarding  either 
the  commission's  methods  or  its  results  in  the  performance  of  its 
various  duties.  Such  information  as  these  reports  contain, 
however,  may  be  briefly  summarized. 

The  problem  of  equalization  was  very  frankly  avoided  in  191 1 
for  lack  of  sufficient  funds  to  make  an  adequate  independent 
review  of  the  assessors'  results.  Upon  the  situation  in  this  year 
the  commission  commented  as  follows : ' 

With  no  more  data  than  is  furnished  us  under  the  present  statute  we 
have  not  felt  that  we  could  enter  upon  the  difficult  duty  of  equalization 
between  the  counties  with  any  confidence  of  making  improvements  sub- 
stantial enough  to  justify  the  changes,  or  arriving  at  an  equalization  the 
justice  of  which  would  be  satisfactory  to  ourselves. 

Continuing,  the  commission  urged  a  sufficient  appropriation  to 
enable  it  to  collect  data  of  sales  and  other  evidence  that  would 
reveal  with  some  accuracy  the  true  value  of  lands  in  the  different 
counties.  With  proper  faciUties  for  making  a  fair  and  equitable 
equalization,  one  of  the  obstacles  to  a  higher  level  of  valuation 
would  be  removed.  The  commission  holds  that  competitive 
undervaluation  is  still  practiced  in  self-protection,  but  that  the 
average  taxpayer  would  prefer  the  defense  and  protection  afforded 
by  an  efficient  state  equalization  of  assessments. 

Four  years  later  more  vigorous  action  was  taken  in  response  to 
popular  demand,  but  with  no  greatly  increased  faciUties  for  com- 
piling accurate  data  by  means  of  which  the  assessors'  work  could 
be  tested.  Increases  of  5  per  cent  to  30  per  cent  were  ordered  in 
seventy-six  counties,  twenty  other  counties  were  left  unchanged, 
and  one  reduction  of  5  per  cent  was  made.  These  orders  resulted 
in  a  net  increase  of  $32,11 8, oco.  Numerous  county  boards  were 
reconvened,  and  a  large  number  of  appeals  were  heard.    In  the 

^  Tax  Commission  of  North  Carolina,  Report,  1912,  p.  v. 


572  TEE  STATE  TAX  COMMISSION 

consideration  of  these  appeals  the  commission  made  use  of  a  small 
amount  of  data  on  values,  especially  in  the  counties  from  which 
the  appeals  were  brought,  but  no  systematic  compilations  of 
material  were  undertaken.^  In  general  the  equalization  of  191 5 
promoted  equality  of  real  estate  assessments,  but  the  commission 
felt  that  no  great  gain  had  been  made  in  the  basis  of  valuation. 
The  principal  standard  which  was  followed  in  determining  the 
amount  of  increase  to  be  made  was  that  which  would  yield  suffi- 
cient state  revenue  to  meet  the  legislative  appropriations.  The 
assembly  had  anticipated  an  increase  of  10  per  cent  while  the 
assessors  averaged  6.6  per  cent.  The  commission's  aim  in  equali- 
zation, therefore,  was  greater  equaHty  of  burden  with  provision 
for  moderate  increase  of  public  revenue.^ 

The  commission's  supervisory  activity  has  been  confined  to  the 
preparation  of  a  pamphlet  of  instructions,  some  visits  to  the  coun- 
ties, and  the  adjustment  of  a  limited  number  of  appeals^  brought 
chiefly  in  connection  with  the  revaluation  of  real  estate.  The 
results  of  this  work  have  been  small.  It  is  doubtful  if  real  estate 
assessments  have  increased  as  rapidly  as  real  values.  For  example 
in  1900  the  total  assessment  upon  27,515,000  acres  of  land  was 
$115,736,000.  The  acreage  of  land  as  returned  by  the  twelfth 
census  was  22,749,000  upon  which,  exclusive  of  buildings,  the 
census  enumerators  placed  a  valuation  of  $141,955,000.  The 
assessors'  lists  included  lands  not  devoted  to  agriculture,  with  the 
improvements  thereon.  The  two  sets  of  figures  are  only  roughly 
comparable,  therefore,  but  when  it  is  recalled  that  the  local 
assessment  in  1900  was  wholly  unsupervised,  the  discrepancy 
between  the  two  valuations  does  not  appear  excessive.  In  1910 
the  assessors  and  the  census  enumerators  returned  valuations  for 
lands  of  $178,780,000  and  $343,164,000,  respectively.  If  it  may 
be  assumed  in  19 10  also  that  the  bulk  of  the  local  assessment  was 
upon  farm  lands,  it  is  clear  that  the  actual  values  of  this  class  of 
property  have  risen  much  more  rapidly  than  the  assessed  valua- 
tions during  a  decade  in  which  the  tax  commission  was  nominally 
exercising   supervision   over   the   local   assessment.     The   local 

'   Tax  Commission  of  North  Carolina,  Report,  1915,  pp.  xii-xv. 
*  Ibid.,  p.  vi. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     S73 

assessors  in  1900,  without  supervision,  attained  more  nearly  the 
full  value  of  farm  lands  than  they  were  able  to  do  in  19 10,  after 
ten  years  of  state  oversight. 

A  similar  conclusion  must  be  drawn  from  a  consideration  of  the 
personal  property  returns.^  The  census  valuation  of  domestic 
animals  on  farms  increased  from  $28,500,000  in  1900  to  $60,- 
050,000  in  1910;  the  assessors  returned  in  1900,  $19,100,000,  or 
67  per  cent  of  the  census  valuation,  and  in  1910,  $42,300,000, 
representing  70  per  cent  of  the  census  figures.  In  both  cases  the 
assessed  valuation  included  all  animals  not  on  farms  as  well.  Ten 
years  of  central  supervision  had  scarcely  increased  the  effective- 
ness of  the  Uve  stock  assessment.  Relatively,  most  classes  of 
tangibles  have  shown  satisfactory  rates  of  increase,  but  no  inde- 
pendent tests  can  be  made  of  the  basis  of  assessment  in  the  case 
of  the  other  groups.  Because  of  the  general  tendency  elsewhere 
to  assess  live  stock  on  as  high  a  basis  of  valuation  as  other  tan- 
gibles, it  seems  unlikely  that  in  North  Carolina  a  better  standard 
of  performance  had  been  reached  in  assessing  other  tangibles 
than  in  the  case  of  Kve  stock. 

The  assessment  of  intangibles  has  been  unsatisfactory  for  the 
most  part  also.  The  one  exception  has  been  a  quite  surprising 
return  of  credits,  which  has  exceeded  the  assessment  of  Hve  stock 
throughout  the  period.  This  disparity,  occurring  in  a  state  that 
is  still  so  predominantly  agricultural  in  interest  as  is  North  Caro- 
lina, suggests  the  degree  of  evasion  that  must  be  occurring  in 
many  states  possessing  greater  resources  and  a  larger  accumu- 
lation of  wealth  than  exists  in  North  Carolina. 

From  this  brief  survey  of  the  North  Carolina  commission's 
results  it  appears  that  its  administration  of  the  tax  laws  has  been 
lacking  in  vigor  and  effectiveness.  The  reasons  for  this  weakness 
are  not  far  to  seek  —  they  are  to  be  found  in  part  in  the  composi- 
tion of  the  tax  commission  itself  and  in  part  in  the  defects  of  the 
tax  law. 

In  the  first  place,  it  was  unfortunate  that  the  duties  of  a  state 
tax  commission  were  imposed  upon  a  board  already  charged  with 
important  duties  and  responsibilities.     The  additional  salary 

*  Cf.  below,  p.  592. 


574  THE  STATE  TAX  COMMISSION 

allowance  fairly  measures  the  relative  outlay  of  energy  by  the 
commissioners  upon  the  tax  duties  as  well  as  the  state's  return 
upon  its  investment  in  a  tax  commission.  Adequate  supervision 
of  the  revenue  system  in  any  state  demands  the  undivided  atten- 
tion and  energy  of  those  in  charge,  and  compliance  with  this  con- 
dition must  be  the  first  step  to  be  taken  in  North  CaroKna,  if 
better  results  are  to  be  achieved  than  have  been  obtained  thus  far. 
Such  a  reform  has  recently  been  urged  by  a  close  student  of  the 
tax  system  of  the  state  and  his  indictment  of  the  administrative 
system  may  be  quoted :  ^ 

The  thing  we  need  in  North  Carolina,  along  with  an  amendment  to  our 
constitution,  is  a  thorough-going  revision  of  our  machinery  of  assessment. 
The  corporation  commission  has  since  1901  served  as  a  state  tax  commis- 
sion and  for  a  time  also  as  a  state  bank  commission.  Its  work  as  a  corpora- 
tion commission  has,  I  think,  been  comparatively  successful,  and  also  as  a 
bank  commission;  and  this  is  all  one  can  reasonably  ask  of  it.  Its  task  as 
a  state  tax  commission  has  not  been  performed  with  any  important  success. 
The  fact  is  clear  that  under  it  many  kinds  of  inefficiency  and  injustice  have 
continued  from  year  to  year.  There  has  been  practically  no  county  equali- 
zation of  assessment,  and  no  equalization  between  the  counties  —  the 
specific  duty  of  the  state  corporation  commission  acting  as  a  state  board  of 
equalization.  The  state  corporation  commission  has  had  for  the  most  part 
no  control  over  the  actual  list-taking  and  assessing.  The  county  commis- 
sioners have  most  of  the  time  controlled  this  work;  they  have  appointed, 
oftentimes  without  care  in  selection,  the  assessor  for  the  township;  they 
have  offered  him  the  insignificant  pay  of  $2.00  to  $3.00  a  day  for  only  a  few 
days  in  the  year. 

The  defects  of  the  tax  law  would  probably  hinder  a  much  more 
vigorous  tax  commission  from  accomplishing  significant  results. 
Leaving  aside  the  fundamental  defect  of  the  uniform  rule,  which 
could  not  be  remedied  without  a  constitutional  amendment,  the 
tax  commission  has  been  greatly  handicapped  by  numerous 
deficiencies  in  the  tax  law,  among  which  the  following  have  been 
the  more  prominent. 

First  of  all  has  been  the  inconsistency  between  the  full  value 
provision  and  the  practice  of  establishing  abnormally  high  tax 
levies.  The  tax  rates  are  voted  biennially  before  the  assessments 
are  made;  they  are,  in  consequence,  rates  high  enough  to  produce 

*  C.  L.  Raper,  "  Our  Taxation  Problem,"  reprinted  from  the  South  Atlantic 
Quarterly,  April,  19 13,  p.  15. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     575 

the  anticipated  revenue  on  the  old  basis  of  valuation.  The  tax- 
payer wisely  objects  to  putting  his  head  in  such  a  noose.  The 
commission  has  urged  for  years  a  policy  of  tax  rate  limitation 
which  would  make  possible  a  reasonably  effective  campaign  for 
higher  valuations.  Under  the  circumstances  such  a  tax  Hmit  as 
that  contained  in  the  original  Ohio  act,  which  the  commission 
favors,  would  probably  be  the  wisest  beginning  of  tax  reform 
legislation. 

Next  to  full  value  assessment,  the  most  important  agency  of 
equitable  assessment  is  an  effective  system  of  equalization.  It 
has  been  seen  that  the  state  equalization  is  of  necessity  quite 
ineffective.  There  is  no  township  equalization,  and  the  county 
board,  consisting  of  the  county  commissioners  and  the  county 
assessor, 

.  .  .  meets  mostly  as  a  matter  of  form,  has  nothing  before  it  but  the  re- 
turns of  the  assessors,  except  that  a  few  alert  citizens  may  appear  to  make 
complaint  of  assessments.  They  remain  in  session  a  few  hours,  change  half 
a  dozen  or  more  individual  assessments,  accept  the  returns  as  filed  and  go 
home;  such  an  equalization  amounts  to  nothing.^ 

The  introduction  of  township  equaHzation,  with  full  publicity  of 
assessments  and  ample  opportunity  for  each  taxpayer  to  scruti- 
nize the  township  assessment  roll,  is  a  fundamental  requisite  to 
satisfactory  local  assessments.  It  cannot  be  supposed  that  the 
system  of  choosing  the  assessors  in  North  Carolina  is  a  suffi- 
ciently adequate  safeguard  against  undervaluation  and  evasion 
to  sanction  omission  of  the  local  equaHzation.^  The  district 
assessor  is  appointed  by  the  county  commissioners  or  by  the 
aldermen  of  cities.  He  is  not  so  directly  responsible  to  his  con- 
stituents as  when  elected  by  those  whom  he  assesses,  but  the  type 
of  official  chosen  under  this  system  is  no  higher  than  in  those 
states  which  use  the  elective  principle. 

Other  details  which  would  greatly  promote  equitable  assess- 
ments are  the  separation  of  lands  and  improvements,  with 
provision  for  land  maps  in  each  district,  the  extension  of  the 
commission's  power  to  include  the  ordering  of  reassessments  and 

•  Tax  Commission  of  North  Carolina,  Report,  1914,  p.  ix. 

*  Barnett,  op.  cit.,  p.  90. 


576  THE  STATE  TAX  COMMISSION 

removal  of  negligent  or  incompetent  local  assessors,  and  a  read- 
justment of  the  time  schedule  to  permit  more  time  for  appeals 
and  review  of  assessments.  The  correction  of  all  of  these  points 
of  weakness,  which  in  reality  would  constitute  a  fairly  comprehen- 
sive program  of  tax  legislation,  would  enable  the  North  Carolina 
tax  commission  to  secure  as  effective  results  as  now  appear  to  be 
possible  under  the  general  property  tax.^ 

The  State  Tax  Commission  of  Florida 

Taxation  problems  in  Florida  reached  an  acute  stage  during  the 
trpng  years  in  which  the  losses  and  ravages  of  the  Civil  War  were 
being  repaired  and  the  disorderly  and  inefficient  government  that 
emerged  after  the  return  of  peace  was  being  reconstructed  on  a 
more  stable  basis.  Governor  Reed  proposed  a  state  board  of 
equalization  and  state-appointed  assessors  in  1869.^  The  board 
of  equahzation  was  established  in  187 1  but  its  actions  aroused 
such  violent  opposition  that  the  board  was  presently  aboHshed.^ 
No  further  administrative  development  occurred  until  1887,  in 
which  year  a  state  railroad  assessment  board  was  provided.* 

The  dissatisfaction  with  the  tax  system  did  not  find  further 
formal  expression  after  the  close  of  the  Reconstruction  Period 
until  a  few  years  ago.  In  191 1,  upon  the  urgent  recommendation 
of  the  governor,  a  special  commission  was  provided  for  with 
instructions  to  report  such  changes  as  in  its  judgment  were 
required  to  correct  the  existing  inequalities  and  evasions  in  the 
assessment  of  property.  The  character  of  the  commission's  rec- 
ommendations was  predetermined  by  the  personnel  of  the  com- 
mission, for  the  controlHng  member  was  at  the  time  one  of  the 

1  Cf.  W.  V.  Brown,  "  The  Asheville  Board  of  Trade's  Plan  for  the  General 
Property  Tax,"  Proceedings  of  the  National  Tax  Conference,  1916,  pp.  347-361, 
This  plan  would  limit  the  revenue  from  the  property  tax  to  that  secured  from  a 
low  rate  levied  upon  such  valuation  as  the  administrative  forces  could  uncover.  In 
case  more  revenue  were  needed,  other  sources  must  be  developed.  What  these 
sources  are,  how  reliable  they  would  prove  and  whether  the  modern  government's 
requirements  could  be  financed  in  that  way,  are  not  discussed. 

*  W.  W.  Davis,  The  Civil  War  and  Reconstruction  in  Florida,  pp.  674,  675. 

3  Laws  of  Florida,  1871,  ch.  1841. 

<  Ibid.,  1887,  ch.  3681. 


TAX  COMMISSIONS  IN  TEE  SOUTHERN  STATES     577 

strong  local  advocates  of  a  system  of  tax  reform  then  more  popu- 
lar than  at  present.  This  was  the  separation  of  the  sources  of 
revenue,  and  the  commission's  report  advocates  separation  as 
the  principal  remedy  for  the  undervaluation  and  evasion  then 
so  alarmingly  prevalent.  So  whole-heartedly  did  the  commission 
give  its  support  to  this  idea  that  few  administrative  reforms 
were  suggested.  It  was  stated,  for  example,  in  apparent  good 
faith,  that  were  separation  adopted,  no  necessity  of  state-wide 
equalization  would  occur. ^ 

The  special  commission's  report  was  apparently  of  little  in- 
fluence either  in  affecting  subsequent  legislation  or  in  arousing 
public  opinion  upon  the  subject  of  taxation.  The  legislature  of 
19 13  established  a  state  tax  commission  of  three  members,  to  be 
appointed  by  the  governor  for  a  term  of  four  years  at  a  salary  of 
$3000.2  The  appointees  were  to  be  persons  known  to  possess 
knowledge  of  taxation  and  skill  in  matters  pertaining  thereto. 
But  the  law  establishing  the  commission  in  itself  furnishes  evi- 
dence of  the  undeveloped  thought  on  the  subject  of  taxation  in 
Florida,  a  condition  which  the  special  tax  commission  did  little 
to  dispel.  This  law  failed  absolutely  to  centraHze  and  integrate 
properly  the  state  tax  administrative  structure.  The  tax  com- 
mission has  certain  advisory  powers  only;  no  state  equalization 
was  provided  for,  and  the  ex  ofiicio  state  board  of  assessors  was 
left  in  charge  of  the  assessment  of  corporations. 

These  omissions  will  prove  to  be  a  very  serious  handicap  to  the 
Florida  tax  commission.  The  thesis  has  been  advanced  above 
that  supervision  of  the  local  assessments  has  been  the  distinctive 
function  of  the  state  tax  commission.  This  is  true,  historically, 
but  it  does  not  mean  that  a  commission  which  exercises  only  this 
function  would  be  a  very  useful  institution  for  the  administration 
of  the  ordinary  state  tax  system  of  the  present  time.  Supervision 
comes  at  the  end  of  the  period  of  administrative  development, 
and  for  its  greatest  effectiveness  the  supervisory  head  must 
possess  control  over  the  other  important  functions  of  equaliza- 
tion and  corporate  assessment.    Even  the  supervisory  authority 

*  Report  of  the  Tax  Commission  of  Florida,  191 2,  pp.  14-17. 
'  Laws  of  Florida,  1913,  ch.  6500. 


578  THE  STATE  TAX  COMMISSION 

conveyed  in  the  Florida  act  of  1913  is  relatively  weak,  for  the 
commission  has  no  power  to  order  reassessments,  to  remove  local 
assessors,  or  even  to  receive  and  pass  upon  appeals  from  individual 
taxpayers. 

With  these  limitations,  the  Florida  tax  commission  has  been 
able  to  accomplish  but  Httle,  and  much  of  this  small  achievement 
is  necessarily  of  an  intangible  character.  It  has  found  expression 
chiefly  through  the  agreements  of  the  assessors,  reluctantly 
entered  into,  to  adopt  a  uniform  basis  of  assessment  at  50  per 
cent  of  full  value.  The  law  ordains  an  assessment  at  full  value; 
but  in  Florida,  as  elsewhere,  a  greatly  depreciated  basis  of  assess- 
ment had  long  been  accepted  without  question  in  tax  levies  and 
in  other  matters.  One  of  the  first  acts  of  the  new  commission  was 
an  investigation  into  assessed  values  which  revealed  the  grossest 
inequalities  among  individuals  and  assessment  districts.  A  con- 
vention of  assessors  was  called  but  these  officials  refused  at  first  to 
adopt  any  uniform  basis  of  assessment.  The  commission  then 
issued  instructions  in  1914  for  an  assessment  at  full  value,  and  the 
discussion  evoked  by  this  order  apparently  clarified  the  at- 
mosphere for  the  assessors.  A  second  conference,  called  before 
the  assessment  of  1914,  voted  to  adopt  a  50  per  cent  basis.  The 
members  of  the  commission  visited  the  counties  during  this 
assessment  period,  and  the  conclusion  is  expressed  that  many 
classes  of  property  are  now  assessed  more  uniformly  than  was  the 
case  in  1913.^  To  the  extent  that  the  commission  is  successful  in 
securing  such  uniformity  in  the  original  assessment,  every  purpose 
of  a  state  equalization  is  served.  But  in  1914  and  again  in  1916 
numerous  instances  were  found  of  failure  to  comply  with  the 
instructions  given,  and  the  commission's  corrective  and  coercive 
powers  were  insufficient  to  obtain  the  necessary  changes. ^ 

It  is  unnecessary  to  support  the  conclusion  as  to  the  defective 
character  of  the  Florida  tax  commission  act  by  extended  statisti- 
cal evidence,  but  it  will  be  of  interest  to  notice  some  of  the  prac- 
tices which  the  commission  has  been  unable  to  correct  with  its 
present  powers. 

^  Florida  Tax  Commission,  Report,  1914,  pp.  12-14. 
*  Ibid.,  1914,  p.  24;  ibid.,  1916,  pp.  25,  26. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     579 


The  first  example  is  taken  from  the  figures  on  live  stock  assess- 
ment. The  following  figures  present  a  comparison  of  the  returns 
of  the  state  census  of  live  stock  as  of  July  i,  191 5  and  the  assess- 
ments of  Hve  stock  in  191 5  and  1916: 

Number  and  Total  Valuation  of  Live  Stock  as  Returned  by  the  State 
Census  of  July  i,  1915,  and  in  the  Assessments  of  1915  and  1916^ 


Horses, 

asses  and 

mules 

Sheep  and 
goats 

Swine  and 
dogs 

Cattle 

Total 
number 

Total 
value  all 
animals 

State  census,  1915 

Assessment  of  1915 

Assessment  of  1916 

100,687 
72,175 
70,088 

150,238 
77,026 
79,050 

982,966 
192,64s 
210,28s 

1,014,916 
427,048 
551,724 

2,248,807 
763,894 
911,147 

$29,779,842 
7,42S,o8i 
7,217,145 

These  figures  indicate  the  sore  need  of  additional  powers  of 
supervision  and  correction  of  the  local  returns.  Live  stock  is  one 
of  the  most  easily  assessed  classes  of  property,  and  the  escape  of 
so  large  a  proportion  of  this  property  is  evidence  of  neglect  of 
duty,  or  plain  disregard  of  the  assessors'  agreements  and  the  com- 
mission's instructions.  Notwithstanding  the  increase  in  the  num- 
bers of  cattle  and  sheep  listed  in  1916  the  aggregate  assessed 
valuation  was  less  than  in  191 5. 

A  second  illustration  of  the  same  sort  is  found  in  the  assess- 
ment of  banks.  The  commission  advised  the  assessors  to  take  as 
the  assessed  value  of  banks  the  total  of  capital,  surplus,  and 
undivided  profits,  less  real  estate  locally  assessed.  The  50  per 
cent  basis  was  to  be  used  in  listing  this  valuation.  In  1915  the 
average  assessment  was  at  41.8  per  cent  and  in  1916  at  37.1  per 
cent.  About  60  per  cent  of  the  banks  were  hsted  on  a  40  per  cent 
to  50  per  cent  basis,  while  the  other  40  per  cent  were  assessed  on  a 
25  per  cent  to  30  per  cent  basis.  In  individual  instances  the 
figures  ranged  as  low  as  15.4  per  cent,  and  24.8  per  cent  for 
county  averages.  In  191 5  the  banks  of  one  county  obtained 
reductions  from  the  county  board  which  gave  them  an  assessment 
at  10  per  cent  of  the  proper  amount.'^  Another  instance  was  the 

*  Florida  Tax  Commission,  Report,  1916,  pp.  164,  192.  The  grouping  is  that 
used  in  the  report.  There  is  nothing  to  indicate  the  relative  proportion  of  hogs  and 
dogs  and  hence  no  way  of  knowing  which  the  assessors  omitted. 

*  Ibid.,  pp.  86,  87. 


580  THE  STATE  TAX  COMMISSION 

reduction  of  the  Flagler  estate,  probated  at  $32,000,000  and 
assessed  at  $16,000,000,  to  $5,000,000.  This  estate  had  previously 
been  assessed  at  $75,000.^ 

All  of  these  instances  are  cases  of  flagrant  tax  dodging,  often 
accomplished  with  the  connivance  or  consent  of  the  local  equaliz- 
ing board.  The  tax  commission  is  powerless  to  prevent  such 
practices  without  greater  control  over  the  entire  tax  system  than 
it  now  possesses. 

Perhaps  the  commission's  most  useful  service,  to  the  present, 
has  been  the  educational  campaign  which  it  has  conducted.  This 
pioneer  work  is  proceeding  slowly,  and  as  yet  the  concrete  recom- 
mendations for  more  power  have  failed  of  passage  in  the  legisla- 
ture. Meantime  the  conferences  of  assessors,  the  contact  of  the 
commissioners  with  officials  and  taxpayers,  wise  publicity  of  the 
tax  situation  in  the  state  and  of  the  administrative  developments 
elsewhere,  and  the  general  discussion  which  has  been  provoked, 
are  all  forces  which  have  been  at  work  preparing  the  way  for  a 
larger  sphere  of  usefulness. 

The  State  Tax  Commissioner  op  Georgia 

The  first  step  toward  centralization  of  tax  administration  in 
Georgia,  the  state  assessment  of  corporations,  was  taken  in  1874 
in  requiring  the  comptroller  general  to  assess  certain  corporations.^ 
No  further  significant  administrative  developments  occurred 
until  1913,  in  which  year  the  office  of  state  tax  commissioner  was 
established.'  This  official  was  to  be  appointed  by  the  governor, 
with  the  approval  of  the  senate,  for  six  years  at  an  annual  salary 
of  $2500.  The  title  of  the  office  is  misleading  for  the  act  in  ques- 
tion did  not  give  the  tax  commissioner  the  general  supervisory 
authority  over  the  tax  system  which  has  come  to  be  associated 
with  this  title.  Instead,  the  Georgia  tax  commissioner  is  really  an 
equalization  commissioner,  and  his  principal  duty  is  the  equaliza- 
tion of  local  assessments.  He  possesses  no  supervisory  powers  of 
the  sort  now  generally  exercised  by  state  tax  commissions.* 

*  Florida  Tax  Commission,  Report,  1916,  pp.  84-86. 

*  Laws  of  Georgia,  1874,  No.  104.  '  Ibid.,  1913,  Act,  No.  102. 

*  Cf .  the  outline  of  the  administrative  system  in  1 2th  Census,  Wealth,  Debt,  and 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     58 1 

The  act  of  1913  introduced  also  the  machinery  of  county  equal- 
ization. The  county  commissioners  are  to  appoint  a  county  board 
of  tax  assessors  for  a  six-year  term.  These  county  boards  are  to 
review  the  assessment  lists,  to  add  omitted  property,  and  "  see 
that  all  taxable  property  within  the  county  is  assessed  and  re- 
turned at  its  just  valuation,  and  that  valuations  are  fairly  and 
justly  equalized  so  that  each  taxpayer  shall  pay  as  nearly  as  may 
be  only  his  proportionate  share  of  taxes."  The  sessions  of  the 
county  boards  for  this  purpose  are  Hmited  to  two  months,  after 
which  the  assessment  lists  are  submitted  to  the  tax  commissioner 
for  examination  and  approval.  The  latter  compares  the  tax 
digests  of  the  several  counties,  and  authority  is  given  to  perform 
a  state  equalization  among  the  counties  by  raising  or  lowering  the 
valuation  of  any  class  of  property  in  any  county. 

Three  brief  annual  reports  have  been  pubHshed  to  date  by  the 
Georgia  tax  commissioner.  From  these  reports  it  appears  that 
certain  benefits  have  followed  the  introduction  of  even  so  slight  a 
degree  of  central  administration  as  was  provided  by  the  act  of 
1913.  But  it  is  equally  clear  that  a  further  advance  must  be 
made  if  the  constitutional  ideal  of  uniformity  in  taxation  is  to 
be  realized.  That  is  to  say,  the  provision  of  county  and  state 
equalization  in  Georgia  has  been  made  in  response  to  the  pressure 
of  the  same  forces  the  operation  of  which  in  other  states  has  been 
described ;  ^  but  state  equalization  alone  will  not  solve  the  prob- 
lem of  equitable  tax  administration,  although  some  advantage  is 
certain  to  follow  its  provision  in  the  states  which  had  before 
lacked  such  rudimentary  administrative  centralization.  Some  of 
the  gains  which  have  been  made  in  Georgia  will  be  briefly  noticed. 

The  first  result  was  ah  increase  in  the  total  state  duplicate 
from  $867,973,000  in  1913  to  $953,542,000  in  1914,  or  nearly  10 
per  cent.  This  increase  in  taxable  values  made  possible  a  reduc- 
tion of  the  state  tax  rate  from  five  to  four  and  one-half  mills,  and 
an  aggregate  saving  to  taxpayers  of  about  $500,000.  In  the  course 
of  equalization  the  tax  commissioner  made  a  considerable  number 

Taxation,  p.  681.    This  outline  explains  the  somewhat  different  use  of  terms  in 
Georgia. 

1  Schmeckebier,  Taxation  in  Georgia,  especially  pp.  225-237. 


582  THE  STATE  TAX  COMMISSION 

of  changes  in  the  local  returns  and  it  may  be  presumed  that  these 
furthered  the  equitable  distribution  of  the  tax  burden. 

The  direct  effect  of  this  saving  to  taxpayers  was  to  put  the 
whole  state  in  a  more  receptive  mood  toward  central  tax  adminis- 
tration. The  tax  commissioner  has  been  occupied  with  a  cam- 
paign of  educational  work,  conducted  to  no  small  extent  from  the 
stump,  in  preparing  the  way  for  further  development  of  his 
department.  The  growth  of  state  expenditures  and  the  slow 
increase  of  the  tax  duplicate  since  19 13  have  necessitated  a  sub- 
sequent advance  of  the  state  tax  rate  to  five  mills,  but  the  earlier 
experience  has  been  an  excellent  object  lesson.^ 

On  the  other  hand,  the  experience  of  other  states  indicates  very 
clearly  the  points  of  weakness  in  the  Georgia  plan.  In  the  first 
place,  it  has  been  proved  absolutely  that  equalization  alone  does 
not  sufl&ce.  Equalization  was  unquestionably  necessary  in 
Georgia,  but  it  was  only  a  part  of  the  whole  problem,  and  even 
this  part  is  but  imperfectly  exercised  today.  The  act  of  1913 
empowered  the  tax  commissioner  to  equaUze  among  classes  of 
property  in  the  different  counties,  but  with  no  greater  facilities 
than  could  be  provided  out  of  a  total  expenditure,  including 
the  commissioner's  salary,  of  less  than  $5000,  it  is  not  to  be 
expected  that  the  data  requisite  to  an  adequate  equalization 
could  be  compiled.  Remarks  in  the  report  for  191 5  show  that 
the  tax  commissioner  has  really  passed  this  problem  on  to  the 
local  boards.  His  action  in  equalization  is  consequently  of  small 
significance.  In  1916  changes  were  ordered  in  ten  counties,  but 
in  nine  of  these  counties  the  advance  was  made  on  "  improved 
lands,"  and  in  the  other  case  the  ''  wild  lands  "  were  increased. 
In  addition,  bank  stock  was  increased  in  three  counties  and 
merchandise  in  two  counties.  The  practice  of  reposing  confidence 
in  the  results  of  the  local  equaUzation  is  not  confined  to  Georgia ; 
but  in  this  instance  there  is  less  probabiUty  than  usual  that  an 
adequate  local  equalization  will  be  made. 

A  further  obstruction  to  efficient  administration  is  the  peculiar 
provision  of  the  Georgia  system  for  the  procedure  in  appeals 
against  either  the  local  or  the  state  equalization.   Any  taxpayer 

^  State  Tax  Commissioner  of  Georgia,  Report,  1915,  p.  3. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     583 

who  feels  dissatisfied  with  the  action  of  the  county  board  in 
equalizing  local  assessments  may  demand  an  arbitration,  and  he 
is  allowed  to  name  his  arbitrator,^  The  board  names  its  arbitra- 
tor and  the  two  choose  a  third.  The  majority  action  of  this 
arbitration  board  is  final,  except  as  affected  by  the  action  of  the 
tax  commissioner.  Likewise,  any  board  of  county  assessors  may 
challenge  the  decisions  of  the  tax  commissioner  and  force  a 
similar  farcical  settlement  of  the  dispute.  The  county  arbitration 
board  must  consist  of  freeholders  of  the  county  while  the  repre- 
sentative of  the  tax  commissioner  and  the  third  arbitrator  in  any 
appeal  against  the  state  oflScial's  decision  must  not  be  citizens  or 
property  owners  of  the  county  affected.  The  appeal  of  questions 
of  fact  from  a  qualified  administrative  board  to  a  court  is  bad 
enough,  but  infinitely  to  be  preferred  to  the  submission  of  such 
matters  to  a  board  composed  of  two  strong  partisans  and  a  third 
member  whose  qualifications  and  impartiality  are  entirely 
unknown  factors. 

The  further  defects  in  the  Georgia  law  may  be  seen  from  an 
examination  of  the  details  of  the  tax  duplicate  since  1913.  Refer- 
ence to  these  figures  shows  that  almost  no  further  increase  in  the 
total  assessment  has  been  made  since  1914.^  The  tax  commis- 
sioner explains  this  by  reference  to  the  shrinkage  in  values 
since  the  outbreak  of  the  war.^  Southern  agriculture  did  suffer 
from  the  break  in  the  cotton  market,  but  this  explanation  is 
hardly  sufficient.  There  has  been  not  only  a  fairly  complete 
recovery  from  the  early  agricultural  paralysis;  industry  and 
general  business  have  experienced  a  stimulus  that  has  gone  far 
toward  offsetting  such  temporary  depression  as  was  at  first 
prevalent.  The  shrinkages  in  values  are  always  more  prompt  in 
disappearing  than  the  increases  are  in  getting  upon  the  tax  list. 

'  Laws  of  Georgia,  1913,  Act,  No.  102,  §§  6,  14.  Provision  for  an  arbitration  of 
such  differences  is  a  very  old  feature  of  the  Georgia  law.  It  is  found  at  least  as  far 
back  as  1858,  Laws,  No.  104,  and  it  probably  is  much  older  than  this  date.  Since 
it  has  been  so  long  in  operation,  the  people  may  have  become  accustomed  to  it, 
but  this  does  not  render  it  the  less  anomalous  in  the  modern  centralized  adminis- 
trative system.  Texas  had  a  similar  pro\dsion  in  operation  from  1S73  to  1876. 
Miller,  op.  cit.,  p.  210. 

*  Cf.  below,  p.  592.       '  State  Ta.x  Commissioner  of  Georgia,  Report,  1916,  p.  5. 


584  THE  STATE  TAX  COMMISSION 

It  will  be  seen  from  the  table  below  that  the  principal  sources 
of  the  initial  increases  in  the  duplicate  were  lands  and  corpora- 
tions. The  latter  are  still  subject  to  assessment  by  the  comp- 
troller general.  The  assessed  valuation  of  real  estate,  especially 
city  lots,  has  continued  to  rise  slowly.  The  aggregate  acreage  of 
improved  lands  was  increased  by  736,000  acres  in  19 14,  and 
200,000  acres  have  since  been  added  to  the  tax  rolls.  Some  part 
of  this  increase  appears  to  have  been  due  to  a  reclassification,  but 
the  escape  of  such  quantities  of  land  is  indicative  of  the  loose 
methods  of  local  assessment. 

The  returns  of  personal  property,  both  tangibles  and  intan- 
gibles, show  an  increase  in  the  first  year.  Moderate  as  the  gain 
was,  it  could  not  be  held,  and  at  various  points  the  process  of 
withdrawal  from  the  tax  rolls  has  been  uninterrupted. 

These  figures  indicate  clearly  the  need  of  two  fundamental 
reforms  in  the  Georgia  tax  system.  The  first  of  these  is  the  aban- 
donment of  the  uniform  rule.  Universal  experience  compels  the 
conclusion  that  an  adequate  listing  of  intangibles,  to  be  taxed  at 
ordinary  tax  rates,  is  impossible  and  should  not  be  attempted. 
The  second  conclusion  is  that  a  stronger  degree  of  control  over 
the  local  assessment  is  necessary.  The  remarkable  industrial 
expansion  which  the  southern  states  are  enjoying  should  not  find 
them  hampered  with  unsound  tax  systems  and  inadequate  tax 
administrative  structures. 

The  State  Tax  Commission  of  South  Carolina 

The  act  for  the  establishment  of  a  state  tax  commission  in 
South  Carolina,  passed  in  191 5, Us  perhaps  the  most  comprehen- 
sive of  its  kind  yet  adopted  by  any  southern  state.  This  act 
creates  a  tax  commission  of  three  members,  to  be  appointed  by 
the  governor  for  a  term  of  six  years.  The  chairman  is  to  give  his 
entire  time  to  the  work,  and  is  to  receive  a  salary  of  $2500.  The 
two  associate  members  receive  a  compensation  of  $5.00  per  day, 
and  necessary  expenses  for  the  time  actually  spent  in  the  service 
of  the  state.  This  plan  of  organizing  the  commission  may  prove 
a  weakness,  for  it  has  usually  been  true  that  the  full  time  of  three 

*  Laws  of  South  Carolina,  1915,  No.  99. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     585 

members  has  been  required  in  the  proper  exercise  of  all  of  the 
powers  and  duties  devolving  upon  the  commission.  In  South 
Carolina  these  duties  embrace  the  state  equalization,  the  assess- 
ment of  certain  classes  of  corporations,  and  general  supervision  of 
the  tax  system.  The  former  state  board  of  equalization  and  the 
state  board  of  assessors  were  discontinued,  and  their  general 
powers  and  privileges  were  transferred  to  the  new  tax  com- 
mission. The  supervisory  authority  includes  the  right  to  hear 
appeals  from  taxpayers,  and  to  order  the  reassessment  of  prop- 
erty in  any  district  on  its  own  motion,  as  well  as  the  lesser  but 
distinctly  valuable  phases  of  supervision,  such  as  the  prescrip- 
tion of  blanks,  calling  of  witnesses,  visiting  the  counties,  and 
securing  the  prosecution  of  delinquent  oflSicials  before  the  proper 
courts. 

The  South  CaroKna  tax  commission  has  not  yet  been  in  exist- 
ence long  enough  to  render  its  experience  of  much  value  to  any 
one  but  its  own  members.  Some  of  the  difficulties  which  have 
been  encountered  thus  far  will  be  briefly  noticed  as  they  may  shed 
light  upon  the  t3^pical  tax  administrative  problems  that  are  yet 
to  be  worked  out  in  many  southern  states. 

There  has  been  no  opportunity  up  to  the  present  to  deal  with 
the  problem  of  real  estate  assessment,  as  the  last  quadrennial 
assessment  occurred  in  1914.  The  commission  has  been  making 
certain  studies,  however,  in  anticipation  of  the  reassessment  in 
1918,  and  with  a  view  to  obtaining  some  basis  for  the  equaliza- 
tion of  other  property.  The  most  disturbing  discovery  thus  far 
made  is  the  serious  disorder  in  the  local  assessment  of  real  estate 
due  to  the  antiquated  land  survey  and  the  absence  of  tax  maps. 
No  survey  of  the  state  has  been  made  since  1825,  and  the  present 
township  and  school  district  lines  are  not  shown.  No  estimate  has 
been  made  of  the  total  quantity  of  land  and  buildings  that  have 
not  been  listed  for  taxation;  but  surveys  of  certain  blocks  in 
Charleston  have  shown  that  from  one-half  to  two-thirds  of  the 
land,  and  about  one-half  of  the  buildings,  have  regularly  escaped 
assessment  entirely.^  The  tax  commission  has  made  urgent 
recommendations  for  a  new  survey  of  the  state,  and  the  provision 

'  South  Carolina  Tax  Commission,  Report,  1915,  pp.  22-26. 


586  THE  STATE  TAX  COMMISSION 

of  tax  maps  for  every  tax  district.  There  can  be  little  doubt  that 
the  expenses  incurred  would  soon  be  recovered  from  the  additions 
to  the  real  estate  duplicate. 

The  commission's  brief  investigations  of  the  present  condition 
of  general  property  assessments  have  revealed  the  further  fact  of 
the  existence  of  very  wide  differences  in  the  basis  of  valuation 
used  in  different  counties.  In  some  cases  the  county  boards  have 
adopted  exceedingly  diverse  schedules  of  minimum  values  per 
acre  for  land;  in  other  cases  percentages  of  full  value  were 
adopted,  but  with  little  assurance  that  they  would  be  observed. 
Horses  and  mules  were  assessed  in  191 5  at  county  averages  rang- 
ing from  $28.70  to  $86.48  per  head.  Little  effort  has  been  made 
thus  far  by  the  commission  to  correct  these  inequalities  through 
equalization.^  The  principal  excuses  for  this  reluctance  appear  to 
be,  first,  the  feeling  that  this  is  the  task  of  the  local  boards  of 
equalization;  and  second,  the  unwillingness  to  increase  the  tax 
duplicate  materially  while  the  tax  levies  remain  estabHshed  at  the 
customary  levels.  The  law  requires  an  assessment  and  equaliza- 
tion at  full  value,  and  the  commission  has  evidently  taken  the 
position  that  any  effort  at  equahzation  of  the  local  assessments 
necessarily  involves  marked  advances  in  the  aggregate.  Neglect 
of  this  function  is  less  embarrassing  than  open  violation  of  law  by 
equahzation  on  any  percentage  basis,  and  probably  no  more 
unjust  than  the  extravagance  that  would  follow  the  levy  of  the 
customary  tax  rates  upon  higher  assessed  valuations. 

A  further  reason  for  the  comparative  inattention  paid  to  the 
local  assessments  is  found  in  the  greater  emphasis  which  the  com- 
mission has  placed  upon  the  tasks  of  corporate  assessment  and 
equahzation.  The  act  of  1913  made  no  changes  in  the  system  of 
corporate  taxation  except  to  require  the  tax  commission  to  equal- 
ize the  assessments  of  banks  as  returned  by  the  county  auditors. 
The  practice  has  been  to  ascertain  as  accurately  as  possible  the 
average  percentage  of  full  value  at  which  the  banks,  textile  mills, 
and  other  classes  of  property  required  to  be  equahzed  by  it  have 
been  assessed  over  the  state,  and  then  adjust  the  individual 
assessments  on  this  basis.  The  principal  difficulty  that  has  been 
*  South  Carolina  Tax  Commission,  Report,  1916,  p.  7. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     587 

encountered  has  been  the  opposition  of  the  corporations  them- 
selves. The  banks  brought  heavy  pressure  upon  the  commission 
to  prevent  modification  of  the  returns  which  they  had  made  to 
the  county  auditors.  Various  corporations  directly  assessed  by 
the  tax  commission  have  brought  suits  to  prevent  collection  of  the 
taxes,  and  at  the  end  of  191 6  the  total  amount  of  taxes  involved 
in  these  suits  was  $248,000.* 

It  is  the  practice,  in  a  large  number  of  the  states  having  tax 
commissions,  to  constitute  these  bodies  a  board  of  appeal  and 
revision,  to  pass  upon  their  own  assessments.  In  a  few  cases  the 
appeals  for  revision  of  assessment  go  to  the  courts  of  justice.  In 
Georgia  such  appeals  are  submitted  to  arbitration.  The  South 
Carolina  act  of  1913  established  a  tax  board  of  review,  to  which 
appeals  from  the  action  or  the  findings  of  the  tax  commission 
might  be  taken.  This  board  is  to  consist  of  a  chairman  and  six 
other  members,  the  latter  being  chosen  from  the  respective  con- 
gressional districts  by  the  governor  with  the  consent  of  the  senate. 
There  are  no  qualifications  required  by  the  act  itself,  and  the 
distinctly  political  character  of  this  board  is  seen  in  the  provision 
that  while  the  chairman  is  appointed  for  a  four-year  term,  the  six 
members  are  to  retire  from  office  with  the  governor  who  appointed 
them,  providing  that  their  successors  are  duly  quaUfied  at  this 
time.  No  governor-elect  is  to  be  deprived  of  the  opportunity  to 
hand  out  offices  to  worthy  supporters,  by  any  such  consideration 
as  the  public  service. 

This  unique  provision  for  review  of  the  tax  commission's  actions 
presents  dangerous  possibilities.  The  law  requires  the  chairman 
of  the  board  of  review  to  familiarize  himself  with  the  tax  law  and 
with  the  practice  of  the  tax  commission;  but  this  is  a  very  frail 
safeguard  against  the  ignorance  of  these  subjects  on  the  part  of 
the  other  members.  In  the  first  two  years  the  board  sustained  the 
commission  in  almost  all  of  the  appeals  brought;'^  but  special 
interests  are  very  skillful  in  finding  the  joints  in  such  armor  as 
would  be  worn  by  appointees  of  this  type.   One  of  the  appeals  for 

^  South  Carolina  Tax  Commission,  Report,  1916,  p.  i8. 

*  The  South  Carolina  Tax  Board  of  Review,  Report,  1916.  Published  with  the 
Report  of  the  Tax  Commission,  pp.  1 20-131. 


588  THE  STATE  TAX  COMMISSION 

reduction  of  assessment  which  was  sustained  was  that  of  a  hold- 
ing company.  The  tax  commission  had  held  that  the  law 
required  taxation  of  this  corporation  as  a  separate  legal  entity, 
without  regard  to  the  character  of  its  possessions;  but  the  board 
of  review  assumed  the  responsibility  of  mitigating  the  rigors  of 
double  taxation  in  this  case. 

The  South  Carolina  commission  is  not  made  responsible  in  any 
way  for  the  administration  of  the  state  income  tax.  The  data  on 
this  subject  published  in  its  reports  make  possible  an  interesting 
comparison  of  the  results  of  local  administration  of  state  income 
taxes  with  those  of  central  administration  of  such  taxes,  as  in 
Wisconsin  and  Massachusetts.  No  tax  was  received  from  four 
counties  in  191 6,  while  in  eight  others  the  total  tax  collected  was 
less  than  $100  in  each  case.  The  total  income  tax  receipts  for  the 
state  in  1916  were  $27,690.^ 

The  principal  changes  in  the  tax  system  which  have  been  pro- 
posed by  the  tax  commission  have  been  the  removal  of  the  restric- 
tive constitutional  provisions,  the  introduction  of  separation  of 
sources,  and  the  levy  of  an  inheritance  tax.  The  constitution 
imposes  the  uniform  rule,  or  in  other  words,  the  general  property 
tax;  it  also  contains  the  provision  of  a  three  mill  tax  for  school 
purposes.  The  commission  regards  the  latter  as  a  distinct  barrier 
to  higher  valuations,  and  it  doubtless  is,  especially  in  the  absence 
of  a  suflSciently  definite  educational  program  to  insure  wise 
expenditure  of  the  additional  funds.  The  principle  of  the  con- 
stitutional levy  is  wrong  in  any  case  and  should  be  abandoned. 
The  commission  relies  upon  the  now  generally  discredited  notion 
of  the  influence  of  separation  in  promoting  equality  and  uni- 
formity of  local  assessments.  A  much  more  efficient  way  of 
promoting  equality  of  assessments  would  be  to  extend  the  com- 
mission's powers  of  equalization  and  supervision,  and  to  provide 
sufficient  funds  for  the  development  of  an  adequate  technique  in 
testing  the  assessors'  returns.  The  constitutional  changes  sug- 
gested are  of  course  very  important.  No  development  of  adminis- 
trative control  has  yet  been  able  to  secure  a  complete  listing  of 
intangibles ;  but  with  such  changes  in  the  income  tax  as  might  be 
'  South  Carolina  Tax  Commission,  Report,  1915,  pp.  27-32. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     589 

required  to  permit  modern  methods  of  administration,  a  suitable 
offset  to  this  defective  assessment  of  such  property  might  be 
found. 

The  Arkansas  Tax  Commission 

The  tax  commission  of  Arkansas  was  created  in  1909.'  It  was  to 
be  composed  of  three  members  appointed  by  the  governor  with 
the  consent  of  the  senate,  for  a  regular  six-year  term  at  a  salary  of 
$2400.  The  law  creating  the  commission  expires  by  limitation  in 
1927.  The  commission  was  given  general  supervisory  authority 
over  the  assessment  and  collection  of  taxes  and  over  the  local  tax 
officials.  This  supervision  is  to  be  exercised  by  providing  proper 
blanks  and  forms  for  returns,  by  regular  visits  of  inspection  to  the 
different  counties,  and  by  the  exercise  of  such  powers  as  the  call- 
ing of  witnesses,  the  direction  of  prosecution  for  infraction  of  the 
tax  laws,  the  investigation  of  other  tax  systems,  and  the  recom- 
mendation of  measures  for  the  improvement  of  the  Arkansas  tax 
system.  The  tax  commission  was  also  to  meet  annually  as  a  state 
board  of  equalization,  and  to  assume  all  of  the  duties  of  the  state 
board  of  railroad  commissioners,  created  by  an  act  of  1899.* 

Because  of  insufficient  funds  no  report  has  been  published  since 
191 2.  In  view  of  the  space  limitations  it  does  not  appear  wise  to 
dwell  upon  the  commission's  work  during  the  first  three  years  of 
its  existence,  1909-12,^  while  the  opportunity  is  lacking  to  bring 
the  account  to  the  present  and  form  a  fairer  estimate  of  the 
commission's  achievements. 

The  State  Tax  Commission  of  Kentucky 

The  state  tax  commission  of  Kentucky  was  established  in  1917, 
upon  the  recommendation  of  a  special  commission  which  had 
reported  in  1916.  The  increasing  dissatisfaction  with  the  tax 
system  of  the  state  has  been  registered  by  the  three  special  tax 
commissions  which  had  been  created  since  1908.  The  report  of 
the  second  of  these,  published  in  1914,  contained  numerous  sug- 
gestions for  improvement,  including  a  strong  recommendation  for 

1  Laws  of  Arkansas,  igog,  No.  257.  *  Ibid.,  1899,  No.  53. 

^  Two  reports  have  been  published,  in  1910  and  191 3. 


590  THE  STATE  TAX  COMMISSION 

a  permanent  tax  commission.  This  body  was  to  be  given  control 
over  the  assessment  process  similar  to  that  possessed  by  the  Ohio 
tax  commission  under  the  Warnes  law  of  1913.^  No  action  was 
taken  upon  this  proposal  and  the  third  special  commission,  that 
of  1 91 6,  presented  a  bill  for  a  permanent  tax  commission  which 
was  adopted  without  substantial  change.^  The  principal  features 
of  this  act  are  the  following: 

The  tax  commission  is  to  act  as  a  state  board  of  equalization, 
but  in  this  capacity  it  is  to  deal  only  with  the  county  totals, 
except  in  the  event  of  reassessment  by  the  tax  commission.  It 
replaces  the  various  ex  officio  boards  which  had  been  established 
for  the  assessment  of  corporate  property,  and  it  is  given  fairly 
extensive  supervisory  powers  over  the  original  assessment  of 
property  by  the  local  assessors.  These  powers  are  to  be  exercised 
by  means  of  visits  to  the  counties,  conventions  of  the  county 
assessors,  the  advising  and  instructing  of  assessors,  and  the 
reassessment  of  property  in  case  of  the  failure  of  the  county 
boards  to  observe  the  commission's  orders  as  a  state  board  of 
equalization.  The  tax  commission  act  specifically  continues  the 
revenue  agents  and  the  "  supervisors  of  revenue  agents,"  as  the 
"  tax  ferrets  "  of  Kentucky  are  euphoniously  termed.  The  special 
commission  of  19 14  condemned  the  work  of  these  persons  and 
recommended  the  repeal  of  the  laws  under  which  they  had  been 
appointed.^  They  have  nowhere  been  a  desirable  addition  to  the 
administrative  organization  and  they  would  probably  handicap 
any  serious  effort  of  the  Kentucky  tax  commission  to  put  all 
property  on  the  duplicate  at  its  full  value. 

The  State  Tax  Commission  of  Missouri 

The  principal  powers  and  duties  of  the  Missouri  tax  com- 
mission, which  was  established  in  191 7,  are  the  following:  ^ 

I.  The  preparation  of  a  statement  of  the  value  of  the  taxable 
property  in  each  county  in  the  state,  for  the  use  of  the  state  board 

'  Report  of  the  Special  Tax  Commission  0}  Kentucky,  1914,  p.  48. 

*  Report  of  the  Kentucky  Tax  Commission,  19 16,  pp.  11  flf.  Laws  of  Kentucky, 
Extraordinary  Session,  1917,  ch.  i. 

*  Report  of  the  Special  Tax  Commission  of  Kentucky,  1914,  pp.  10,  20. 

*  Laws  of  Missouri,  1917,  p.  542. 


TAX  COMMISSIONS  IN  THE  SOUTHERN  STATES     59 1 

of  equalization.  At  the  request  of  this  board  the  commission  is  to 
meet  with  it  in  the  state  equalization. 

2.  Exclusive  power  of  original  assessment  over  all  public 
utilities  formerly  assessed  by  the  state  board  of  equalization. 

3.  Certain  supervisory  responsibilities,  such  as  conferring  with 
and  advising  the  local  assessors,  visiting  the  counties  regularly, 
receiving  and  investigating  complaints  as  to  improper  assess- 
ments, prescribing  blank  forms  and  ordering  reassessment  of 
property  upon  its  own  motion.  The  commission  is  expressly 
forbidden  to  undertake  any  regulation  or  restriction  of  local 
freedom  in  the  determination  of  the  tax  levies. 


592 


THE  STATE  TAX  COMMISSION 


APPENDIX  TO  CHAPTER  XVII 

Assessed  Valuation  of  Personal  Property  in  North  Carolina 
1900-14^  (millions  oe  dollars) 


1906 


1908 


/.  Tangibles 

1.  Live  stock 

2.  Farm  utensils  and  mechanics'  tools., 

3.  Household  and  kitchen  furniture  .  . 

4.  Provisions 

5.  Musical  instruments 

6.  Plate,  watches,  jewelry , 

7.  Goods,  merchandise 

8.  Farm  products 


Total. 


//.  Intangibles 

1.  Moneys 

3.  Credits 

3.  Stocks,  etc 

4.  Private  bankers . 


Total . 


All  other 

Grand  total 


19. 1 
2.2 
6.1 
2-3 

I.O 


36.0 

4.8 

22.3 

6.4 


33-5 
23-7 


22.1 
2-3 

7-4 

2.3 

1-3 

I.I 

12.3 

S-o 


28.6 
2.6 
8.S 
3.6 
1-7 
1-3 
16.3 
10.2 


34-4 
2.9 
9-4 
3-3 
2.2 
i-S 
20.5 
II. 2 


35.8 
31 

lO.I 

30 

3.6 

1.6 

21.9 

lO.I 


42.3 

3.8 

13.6 

3.7 

3-1 
1.7 

243 
12.6 


47-1 
4-2 

12.3 
6.3 


31.1 

23-4 


S3.8 


4.2 

28.S 

4.2 

.6 


69.7 


S.6 

32.3 

3-6 

4.8 


85.4 

6.8 

40.1 

2.8 

•9 


6.3 

43-9 

2.6 


103.0 


6.9 


7.6 

53-2 

4-5 


37.S 
17.9 


46.3 
17-3 


S0.7 
23.8 


53-9 
29.8 


58.4 
31.2 


65.3 
2S.8 


192.6 


21SS 


49-7 
13. 1 


23.0 
IS.2 


7.6 
60.7 


68.3 
II. I 


The  classification  is  quite  erratic,  especially  in  later  years,  and  the  disposition  of  certain  minor 
items  of  tangible  property  is  very  uncertain.  The  figures  are  sufficiently  accurate  to  indicate  the 
general  course  of  the  assessments. 

The  Tax  Duplicate  of  Georgia,  1913-16  ^  (millions  of  dollars) 


1913 

1914 

191S 

1916 

/.  Real  Estate 

201.6 
250.0 

243.1 
272.8 

244.1 
279.6 

247.3 

Lots 

283.1 

Total  real  estate 

4SI.6 

41.4 
13.0 
41.0 
40.1 
27.9 
2.7 

514-9 

44.0 
14.0 
43-3 
42.6 
29-5 
1.8 

523-7 

40.9 
14. 1 
42.0 
41.2 
29.2 
3-1 

539.4 

//.  Personal  Property 
(0)  Tangibles 

41.3 

15-0 

40.4 

43-8 

29.1 

3-0 

Total  tangibles 

166.1 

50. 1 

41.8 

3-3 

•4 

I7S-2 

56.4 

44.2 

2.6 

.6 

170-S 

53-6 

40.4 

2.6 

•  7 

172.6 

(6)  Intangibles 

SO.  7 

39.6 

1-7 

■4 

9S-6 

9-7 

103.4 
9-3 

97-3 
9-1 

92.4 

///.  All  Other  Property 

7-1 

867.9 

9535 

9SI-9 

'  State  Tax  Commissioner  of  Georgia,  Report,  1916,  p.  6. 


CHAPTER  XVIII 

STATE  TAX  COMMISSIONS  IN  THE  WESTERN  STATES 

The  State  Tax  Commissioner  of  Wyoming 

The  comparatively  undeveloped  resources,  undiversified  pur- 
suits, and  sparse  population  of  Wyoming  have  prevented  the 
fiscal  problems  of  the  state  from  attaining  the  proportions  that 
similar  problems  have  elsewhere  assiraied.  They  have  not,  how- 
ever, prevented  the  repetition  on  a  smaller  scale  of  the  develop- 
ments which  have  been  so  characteristic  of  the  recent  history  of 
tax  administration. 

A  state  board  of  equalization  was  created  in  the  territorial 
period,^  and  was  perpetuated  by  a  constitutional  provision  when 
that  instrument  was  framed.^  The  organic  law  also  provided  that 
the  state  board  of  equalization  was  to  equalize  among  counties,  to 
fix  a  valuation  each  year  for  the  assessment  of  hve  stock,  and  to 
assess  at  actual  value  the  franchise,  roadbed,  rails,  and  rolling 
stock  of  all  railroads.  This  valuation  was  to  be  apportioned 
among  the  counties  for  taxation  at  the  local  rates.  The  duty  of 
corporate  assessment  was  broadened  in  1891  to  include  the  tele- 
graph and  telephone  companies,^  and  in  190 1  the  various  classes 
of  car  companies.^  Two  years  later  the  board  was  required  to 
ascertain  and  assess  the  gross  output  of  mines, ^  and  to  certify  to 
the  state  treasurer,  upon  the  basis  of  returns  made  by  the  express 
companies,  the  taxes  due  at  5  per  cent  upon  the  gross  receipts  on 
business  done  within  the  state.^ 

The  office  of  state  tax  commissioner  was  created  in  1909.^  There 
is  no  record  of  the  forces  which  led  to  the  establishment  of  this 
office,  although  the  fact  that  the  board  of  equalization  is  an  ex 

^  Revised  Statutes  of  Wyoming,  1887,  §  3804. 

'  Constitution  of  Wyoming,  1889,  Article  XV,  §  9. 

'  Laws  of  Wyoming,  1891,  ch.  99. 

*  Ibid.,  1901,  ch.  81.  •  Ibid.,  ch.  iii. 

*  Ibid.,  1903,  ch.  81.  ^  Ibid.,  1909,  ch.  66. 

593 


594  THE  STATE  TAX  COMMISSION 

officio  body  is  doubtless  significant.  The  tax  commissioner  was  to 
be  appointed  by  the  governor  for  a  term  of  four  years  at  a  salary 
of  $2500.  No  person  was  to  be  appointed  to  the  office  unless  he 
was  "  known  to  possess  knowledge  of,  and  training  in  the  subject 
of  taxation,  and  skilled  in  matters  pertaining  thereto."  To  this 
official  was  transferred  as  much  of  the  function  of  corporate 
assessment  as  was  consistent  with  the  constitution.  The  tax 
commissioner  was  required  to  make  the  actual  appraisal  of  the 
property  of  corporations  and  submit  his  results  to  the  state  board 
of  equalization,  by  whom  his  figures  might  presumably  be 
reviewed  and  corrected,  and  possibly  garbled.  The  formal  assess- 
ment of  this  property  was  of  course  left  with  the  state  board. 
The  act  of  1909  continued  the  process  of  administrative  evolution 
by  conferring  upon  the  state  tax  commissioner  general  supervision 
over  the  tax  system.  This  supervision  was  authorized  in  terms 
similar,  in  general,  to  those  employed  in  many  other  statutes. 
The  tax  commissioner  was  to  confer  with,  advise,  and  direct 
assessors;  to  direct  proceedings  and  prosecutions  to  be  instituted 
to  secure  proper  observance  of  tax  laws;  to  require  proper  returns 
from  officials  and  taxpayers;  to  visit  the  several  counties;  to 
investigate  the  tax  laws  of  other  states  and  recommend  desirable 
improvements ;  to  receive  complaints ;  to  order  omitted  property 
to  be  added  to  the  tax  rolls;  and  last,  though  not  least,  to  order 
reassessment  of  any  property  whenever  such  action  was  judged 
necessary  in  order  to  attain  the  legal  standard  of  full  value 
assessment. 

There  are  no  data  available  as  to  the  methods  employed  in  the 
discharge  of  the  various  duties  imposed  upon  the  tax  commis- 
sioner and  the  state  board  of  equahzation.  The  whole  procedure 
has  remained  of  a  comparatively  simple  type,  with  an  equally 
undeveloped  technique,  as  may  be  seen  from  the  fact  that  the 
contingent  expenses  of  the  office  for  1916  amounted  to  $3429.^ 
The  state  board  of  equalization  continues  to  dominate  tax  admin- 
istration in  the  state,  and  in  191 6  it  was  still  indulging  in  the 
practices  which  have  made  such  boards  so  very  ineffective.  The 
values  which  it  certified  to  the  assessors  for  the  assessment  of  Uve 

1  State  Tax  Commissioner  of  Wyoming,  Report,  1916,  p.  8. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES      595 

stock  were  about  60  per  cent  to  70  per  cent  of  full  value. ^  The  tax 
commissioner  implied  that  a  similar  standard  was  observed  in 
assessing  the  corporate  property  under  its  jurisdiction ;  but  there 
is  nothing  to  indicate  the  amount  by  which  the  commissioner's 
own  figures  were  reduced  thereby.  It  is  not  to  be  expected  that 
such  an  example  would  stimulate  the  local  assessors  to  a  very 
strict  observance  of  the  law. 

A  similar  inactivity  has  marked  the  work  of  the  state  board  in 
its  equalization  of  the  local  returns.  In  191 5  its  authority  in 
equalization  was  broadened  to  include  property  of  every  sort.^ 
This  amendment  presents  the  opportunity  of  exercising  a  certain 
influence  over  the  local  assessment,  as  there  is  complete  freedom 
of  revision  in  the  equalizing  process.  But  an  ex  officio  body, 
without  the  time,  energy,  and  equipment  for  collecting  the  data 
upon  which  such  a  revision  necessarily  rests,  cannot  be  expected 
to  seize  the  opportunity  thus  opened  to  it. 

The  tax  commissioner  has  apparently  been  disposed  in  recent 
years  to  shift  the  responsibility  for  making  such  corrections  to  the 
board  of  equalization  and  to  neglect  his  own  power  of  ordering 
reassessments.'  The  latter  policy  was  followed  in  the  first  assess- 
ments made  under  the  new  administrative  reform,  and  with  very 
significant  results.  The  total  assessment  of  property  for  1908  was 
$67,580,000.  In  1909,  the  first  year  of  central  administration,  it 
was  $186,157,000.  Use  was  made  of  the  authority  to  order 
reassessments,  especially  in  securing  a  better  listing  of  mortgages.* 
Such  property  had  been  returned  from  only  two  or  three  counties 
previous  to  1909,  and  the  total  of  all  moneys  and  credits  in  1908 
was  only  $555,341.  The  next  year  a  total  of  $5,688,000  was 
returned.  Mortgages  were  exempted  from  taxation  in  191 1,  and 
under  cover  of  this  provision  practically  all  moneys  and  other 
credits  have  been  withdrawn  from  the  tax  roll.  The  commissioner 
urges  complete  legal  exemption  for  such  property.^ 

*  State  Tax  Commissioner  of  Wyoming,  Report,  1916,  pp.  7,  8. 

*  Laws  of  Wyoming,  1915,  ch.  119. 

'  State  Tax  Commissioner  of  Wyoming,  Report,  1916,  p.  8. 

*  Ibid.,  1910,  pp.  8,  9. 

'  Ibid.,  1912,  p.  7.  In  1914  the  total  of  moneys  and  credits  returned  was  only 
$190,000. 


596  THE  STATE  TAX  COMMISSION 

In  conclusion,  it  is  evident  that  the  central  administration  of 
the  tax  system  has  not  been  vigorous  in  Wyoming.  There  is 
room  for  an  aggressive  and  efl&cient  department  of  this  sort,  even 
in  a  state  presenting  the  relatively  simple  and  undiversified  con- 
ditions found  in  Wyoming.  Until  the  constitutional  provision 
requiring  an  ex  ofi&cio  board  of  equalization  can  be  cleared  away, 
the  best  plan  for  the  attainment  of  this  organization  appears  to  be 
that  adopted  in  Colorado.  The  Wyoming  law  has  already  under- 
taken the  transfer  of  most  of  this  board's  statutory  authority  to 
the  tax  commissioner,  but  that  department  at  present  lacks 
virility.  A  commission  of  three  members,  with  a  much  enlarged 
appropriation  for  the  development  of  the  necessary  technique 
of  a  corporate  valuation  and  local  supervision,  would  have  a  far 
better  chance  of  counteracting  the  influence  of  the  state  board 
of  equalization  than  the  present  tax  commissioner  has,  with  his 
very  restricted  appropriation  and  primitive  ofl&ce  organization. 

The  State  Tax  Commission  of  Colorado  ^ 

The  establishment  of  the  Colorado  tax  commission  in  1911  was 
practically  the  first  step  in  tax  reform  that  had  been  taken  in  the 
state  since  the  adoption  of  the  constitution  in  1876.  During  this 
period  the  basis  of  the  state  revenue  system  had  been  the  general 
property  tax.  The  administrative  structure  of  this  tax,  as  laid 
down  by  the  constitution,  included  a  county  assessor  elected 
locally  for  a  two-year  term,  and  county  and  state  boards  of  equali- 
zation. The  last  named  board  was  to  consist  of  the  state  officers 
acting  ex  officio. 

This  administrative  structure,  characteristic  in  its  essentials  of 
the  general  property  tax  everywhere,  was  of  course  powerless  to 
prevent  the  appearance  of  the  customary  defects  of  this  system. 
The  state  board  of  equalization  had  indeed  attempted,  in  a  feeble 
way,  to  make  a  more  effective  equalization,  but  in  every  instance 
it  was  checked  by  the  courts.^  After  the  last  rebuff,  in  1900,  the 

^  The  work  of  the  Colorado  commission  has  recently  been  described  by  Dr.  R. 
M.  Haig,  in  a  report  prepared  for  the  Survey  Committee  of  State  Affairs. 

2  Cf.  Colorado  Tax  Commission,  Report,  1915,  pp.  8,  9.  In  1877  the  court  held 
that  the  board  had  no  power  to  increase  the  aggregate  of  the  local  assessments. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES        597 

board  made  no  further  efforts  at  equalization,  and  the  local 
assessment  practices  flourished  unchecked. 

In  191 1  the  legislature  passed  a  law  establishing  a  state  tax 
commission  of  three  members.  The  governor  and  treasurer  to- 
gether were  to  appoint  these  members  for  a  regular  term  of  six 
years  at  an  annual  salary  of  $3600.^  The  commission  was  given 
general  supervision  over  the  tax  system,  including  the  right  to 
order  a  reassessment  of  any  property  in  any  subdivision;  to 
make  the  original  assessment  after  June  15,  191 1,  of  all  corpora- 
tions previously  assessed  by  the  state  board  of  equalization;  and 
to  prepare  a  statement  regarding  the  equalization  of  assessments 
for  the  use  of  the  state  board.  The  latter  could  not  be  deposed 
except  by  constitutional  amendment,  and  the  legislature  went  as 
far  as  it  could  in  making  the  tax  commission  the  real  equalizing 
body,  by  requiring  the  commission  to  determine  the  true  value  of 
the  property  in  the  state  and  certify  its  findings  to  the  board  of 
equaHzation.  An  amendment  to  abolish  the  latter  was  submitted 
in  the  election  of  191 2  but  was  rejected,  though  on  grounds 
that  did  not  touch  the  question  of  the  relative  merits  of  the  two 
boards.^ 

Equalization.  —  The  relation  of  the  Colorado  tax  commission  to 
the  task  of  equalization  has  been  that  of  a  compiler  of  materials, 
a  position  similar  to  that  occupied  by  the  Michigan  Board  of 
State  Tax  Commissioners.  This  position  has  not  been  an  easy  one 
in  either  Colorado  or  Michigan,  and  much  of  the  subsequent 
opposition  to  the  tax  commission  in  the  former  state  has  arisen 
because  of  the  commission's  fearless  and  vigorous  treatment  of  the 
local  assessors'  returns  in  equalization. 

Because  of  the  delay  in  organizing  the  commission,  it  did  not 
begin  to  play  an  active  part  in  the  state  equalization  until  19 13. 

3  Colo.  428.  In  1899  a  change  in  the  assessed  valuation  of  certain  classes  of  prop- 
erty was  held  to  be  unconstitutional.     27  Colo.  346. 

1  Laws  of  Colorado,  191 1,  ch.  216.  Cf.  above,  p.  140.  Haig,  op.  cit.,  p.  19,  gives 
another  explanation  for  this  unusual  provision.  The  State  Board  of  Equalization, 
Report,  191 1,  p.  3,  also  explains  it.  Chiefly  for  political  reasons,  the  appointments 
were  delayed  until  May  16,  191 2,  and  were  only  made  then  because  the  supreme 
court  held  that  the  board  of  equalization  had  no  power  to  assess  the  utiUties. 

*  Cf.  Haig,  op.  cit.,  p.  8,  and  note,  for  a  summary  of  the  reasons  for  the  failure 
of  this  amendment. 


598  THE  STATE  TAX  COMMISSION 

The  assessors  had  been  urged  by  letter  in  191 2  to  accept  ;^2)\  P^r 
cent  as  the  uniform  basis  of  valuation,  but  they  gave  little  atten- 
tion to  the  suggestion  and  the  commission  attempted  no  equaliza- 
tion of  the  returns.^  The  general  results  of  its  subsequent  efiforts 
to  determine  the  true  cash  value  of  the  property  in  the  state  may 
be  presented  in  the  following  form :  ^ 

Net  Results  of  the  State  Equalization  in  Colorado,  1913-16 

Increase  recom-  Number  of  coun-  Action  of  the 

mended  by  the  ties  in  which  in-  state  board  of 

Year  tax  commission  creases  were  made  equalization 

1913 $186,551,000  58  No  change 

1914 i35>oS4,ooo  24                               " 

1915 59,228,000  12                                " 

1916 2,542,000  5  $406,000  dec. 

In  1 913  all  but  five  of  the  counties  in  the  state  were  advanced 
by  the  tax  commission  as  the  result  of  its  investigations  into  the 
condition  of  the  local  assessments.  As  the  law  then  stood  these 
increases  were  of  necessity  horizontal  advances  on  all  classes  of 
property  instead  of  particular  increases  on  certain  classes.  Of  the 
aggregate  increase  in  1913,  $101,902,000,  or  54.6  per  cent  of  the 
total  advance,  was  made  by  levying  a  40  per  cent  increase  on 
property  in  the  city  of  Denver.  Similarly,  $90,377,000,  or  66.9 
per  cent  of  the  total  increase  of  19 14,  was  made  on  the  property  of 
this  city.  This  apparent  discrimination  against  the  largest  city 
of  the  state  aroused  violent  but  largely  unfounded  opposition 
against  the  commission,  opposition  which  culminated  in  the 
unsuccessful  effort  to  aboHsh  it  in  1916.^  The  increase  of  1914 
was  also  made  horizontally  because  of  the  unwillingness  of  the 
county  boards  of  equalization  to  equalize  by  specific  additions  to 
certain  classes  of  property.  The  state  supreme  court  had  decided 
(January  12,  19 14)  *  that  the  tax  commission,  under  its  power  of 
original  assessment,  could  increase  the  assessment  of  any  class  of 
property,  and  that  the  state  board  of  equalization  was  empowered 

^  Colorado  Tax  Commission,  Report,  191 2,  pp.  6,  7. 
^  Data  compiled  from  the  annual  reports  of  the  tax  commission. 
^  The  investigation  conducted  by  Dr.  Haig  was  published  in  time  to  beef  material 
assistance  in  preventing  the  overthrow  of  the  commission. 
*  56  Colorado,  343. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       599 

to  consider  the  commission's  recommendations  as  a  part  of  the 
local  returns.  It  was  possible,  therefore,  to  equalize  in  1914  by 
making  additions  to  certain  classes  of  property. 

The  j&gures  above  indicate  that  there  has  been  a  steady  im- 
provement in  the  work  of  the  local  assessors.  The  commission  has 
been  able  to  enlist  practically  all  of  the  assessors  in  the  coopera- 
tive task  of  a  proper  assessment,  and  as  the  local  officials  have 
responded  to  the  commission's  suggestions  fewer  corrections  have 
been  required  to  secure  an  approximately  equitable  valuation  of 
the  classes  of  property  that  are  ordinarily  subjected  to  assess- 
ment. The  returns  of  intangibles  are  recognized  to  be  very  im- 
perfect,^ and  no  attempt  has  been  made  to  deal  with  these  forms 
of  property  in  the  equalization. 

The  limitation  upon  the  freedom  of  the  state  board  of  equaliza- 
tion was  removed  by  a  constitutional  amendment  adopted  in 
1914.  It  is  exceedingly  unfortunate  that  the  people  preferred  — 
or  at  least  voted  —  to  retain  the  ex  officio  board  and  extend  its 
powers  instead  of  transferring  its  authority  to  the  tax  commission, 
the  only  body  in  the  state  competent  to  perform  this  function. 
The  amendment  of  19 14,  which  removed  the  restriction  against 
increasing  the  aggregate  local  valuation,  may  give  the  ex  ofiicio 
board  too  free  rein.  This  difficulty  has  not  yet  become  apparent 
in  the  equalization  of  property  assessed  under  general  laws,  for 
the  board  has  made  practically  no  changes  in  the  commission's 
recommendations.  On  the  other  hand,  it  has  begun  to  entertain 
appeals  from  corporations  against  the  assessments  estabUshed  by 
the  tax  commission,  and  even  in  the  two  years  since  the  amend- 
ment was  passed  it  has  displayed  an  increasing  tendency  to  allow 
reductions  on  appeal.  In  1915  $1,700,000  was  allowed  to  three 
companies,  while  in  191 6  nine  companies  were  granted  an  aggre- 
gate deduction  of  $12,039,000.'  Should  this  privilege  be  exercised 
upon  a  very  much  larger  scale,  it  may  result  in  demoralization  of 
the  assessment  of  corporate  property  by  the  commission. 

The  constitutional  amendment  of  1914  referred  also  to  the 
powers  of  the  county  boards  of  equahzation  in  a  way  that  may 

^  Cf.  below,  p.  625. 

*  Colorado  Tax  Commission,  Report,  1915,  p.  12;  ibid.,  1916,  p.  7. 


6oO  THE  STATE  TAX  COMMISSION 

prove  detrimental  to  the  tax  commission.  The  amendment  pro- 
vided that  these  county  boards  were  to  "  adjust,  equalize  and 
raise  or  lower  "  the  valuation  of  property  in  their  respective 
counties,  subject  to  "  revision,  change,  and  amendment  "  by  the 
state  board  of  equalization.  The  corporations  promptly  con- 
tended that  the  county  boards  were  thereby  authorized  to  equalize 
the  assessments  of  corporate  property  made  by  the  tax  commis- 
sion, and  the  Railway  and  Light  Company  of  Denver  secured  a 
reduction  of  $7,731,000  from  the  commission's  assessment  in 
1915.^  The  state  board  of  equalization  cancelled  this  reduction, 
but  under  pressure  from  the  corporation  rescinded  its  action. 
This  situation  presents  serious  possibilities  for  crippling  the  com- 
mission's efficiency  in  assessing  corporate  property.  Judicial  con- 
struction may  restrict  the  activity  of  the  county  boards,  but  the 
only  safe  remedy  is  the  abolition  of  the  state  board  of  equaHza- 
tion  and  the  transfer  of  its  functions  to  the  tax  commission. 
The  latter  reconmiended  this  in  1916,  but  the  actual  change  is 
probably  still  a  long  way  off. 

In  the  meantime,  progress  is  clearly  being  made  toward  a  more 
satisfactory  basis  of  valuation.  It  is  impossible  to  say  how  nearly 
this  basis  approaches  full  value;  but  it  is  fairly  clear  that  greater 
uniformity  is  steadily  being  attained.  This  is  shown  in  the  decHn- 
ing  number  of  changes  in  local  assessments  which  the  tax  com- 
mission has  felt  obliged  to  recommend.  The  principal  weakness 
at  this  point  continues  to  be  the  lack  of  adequate  facihties  for 
making  an  effective  independent  investigation  of  the  local  assess- 
ments. Special  investigators  of  the  commission  have  worked  in 
nearly  every  county,  and  some  use  has  been  made  of  the  sales 
method. 2  The  very  inadequate  appropriations  have  prevented  a 
fuller  development  of  these  and  other  methods  of  investigation. 
In  1 9 13  the  commission  was  suppHed  with  data  on  values  com- 
piled by  some  of  the  pubHc  utilities  subject  to  central  assessment. 
While  these  materials  were  given  such  independent  tests  as  were 

^  Colorado  Tax  Commission,  Report,  1915,  p.  13. 

*  The  Somers  system  had  been  used  to  value  the  real  estate  in  the  business  dis- 
trict of  Denver.  The  "  optimistic  "  results  obtained  in  this  valuation  may  have 
influenced  the  commission's  recommendations  somewhat.  Letter  from  Commis- 
sioner J.  B.  Phillips,  October  29,  1914. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       6oi 

possible,  the  suspicion  of  corporate  interest  could  not  be  avoided, 
and  in  making  some  use  of  them  the  commission  added  fuel  to  the 
fire  of  opposition  to  its  methods.^ 

The  Assessment  of  Corporations.  —  The  development  of  central 
assessment  of  corporations  began  in  1877,  in  which  year  the  state 
board  of  equahzation  was  required  to  assess  the  railroads.* 
Telegraph,  telephone,  and  car  companies  were  added  in  1885, 
and  express  companies  in  1902.^  The  work  of  the  state  board  of 
equahzation  was  very  unsatisfactory.  The  aggregate  valuation 
of  the  property  assessed  by  it  in  1888  was  $30,411,000;  ten  years 
later  it  was  $30,431,000.  In  1901  an  effort  was  made  to  break 
with  the  past  by  creating  a  state  board  of  assessors.  This  board 
was  to  be  composed  of  thirteen  county  assessors,  elected  from 
their  number  by  all  of  the  county  assessors  assembled  in  confer- 
ence at  Denver  for  the  purpose.*  Suit  was  promptly  brought 
against  this  board,  and  the  law  creating  it  was  held  invahd. 
Legislation  in  1902  legahzed  the  corporate  assessment  made  for 
1 90 1  by  the  state  board  of  equalization  after  the  statutory  period 
for  such  assessment  had  passed.^  The  total  corporate  valuation 
for  1901  was  $124,985,000,  of  which  $120,356,000  was  railroad 
property.  These  figures  did  not  stand,  and  the  railroads  settled 
for  taxes  on  about  the  same  basis  as  in  1900.®  In  1902  the  total 
assessment  of  corporate  property  dropped  to  $53,233,000.  In 
this  respect  the  experiment  of  1901  was  measurably  successful,  as 
the  valuations  never  got  back  to  the  old  level.  Under  the  state 
board  it  never  got  far  beyond  this  new  level  for  in  191 1  the  total 
assessment  was  $60,449,000. 

The  results  of  central  corporate  assessment  since  191 2  are  sum- 
marized in  a  table  given  as  an  appendix  to  this  chapter.^  The  tajc 
commission  was  appointed  too  late  in  the  year  191 2  to  begin  an 
effective  appraisal  of  the  corporations  subject  to  central  assess- 
ment and  in  consequence  figures  approximating  those  of  the  state 
board  of  equalization  for  the  preceding  year  were  adopted.    The 

1  Haig,  op.  cit.,  pp.  30,  31.  *  Ibid.,  1901,  ch.  94. 

*  Laws  of  Colorado,  1977,  ch.  87.  *  Ibid.,  1902,  ch.  2. 

'  Ibid.,  1885,  p.  321;  1902,  ch.  3. 

'  Colorado  State  Board  of  Equalization,  Report,  1911,  p.  108,  and  note. 

'  Cf.  below,  p.  624. 


6o2  THE  STATE  TAX  COMMISSION 

more  vigorous  policy  initiated  in  19 13  produced  an  additional 
assessment  of  about  $140,000,000.  From  the  high  point  reached 
in  1914  the  aggregate  valuation  declined  about  $20,000,000  in  the 
next  two  years.  The  responsibility  for  this  decline  rests  in  part 
upon  variations  in  the  factors  of  value  considered  by  the  com- 
mission, especially  earnings,  and  in  part  upon  the  state  board  of 
equahzation  which  allowed  deductions  in  19 16  amounting  to 
$12,039,000.  Of  this  amount,  $7,656,000  was  allowed  to  the 
utilities  of  Denver. 

The  methods  of  the  commission  in  assessing  corporations  are 
principally  the  capitalization  of  earnings  and  the  stock  and  bond 
valuation.  The  results  obtained  from  these  calculations  are 
averaged,  and  then  modified  in  individual  cases  as  circum- 
stances may  make  necessary. ^  The  operation  of  the  tax  on 
private  car  lines  is  quite  as  unsatisfactory  in  Colorado  as  else- 
where. The  aggregate  valuation  is  small,  and  the  distribution 
of  this  sum  among  the  tax  districts  on  the  basis  of  the  car 
mileage  in  each  district  produces  such  an  absurdly  small  amount 
in  many  cases  that  the  collectors  do  not  take  the  trouble  of  col- 
lecting it.  The  obvious  remedy  is  to  divert  the  entire  tax  into 
the  state  treasury. 

The  commission  has  been  able  to  secure  a  certain  measure  of 
cooperation  with  the  local  assessors  in  the  valuation  of  private 
companies.  This  whole  class  of  concerns,  regardless  of  volume 
of  business  or  extent  of  plant,  is  still  locally  assessed.  In  1916 
the  commission  secured  increases  in  assessment  amounting  to 
$5,468,000  upon  six  of  the  larger  manufacturing  companies. 
The  state  board  of  equalization  sustained  these  increases,  but 
rejected  others  totalKng  $406,000  upon  two  companies.  At  the 
average  rate  of  sixteen  mills,  the  estimated  revenue  from  this 
additional  valuation,  on  which  no  taxes  had  ever  been  paid,  was 
about  $87,000,  or  more  than  enough  to  cover  the  entire  cost  of 
the  commission  for  four  years. ^  The  fooHsh  and  shortsighted 
opponents  of  the  commission  have  permitted  such  facts  to  be 
entirely  obscured  by  their  petty  opposition  to  its  work. 

^  Letter  from  Commissioner  J.  B.  Phillips,  October  29,  1914. 
'  Colorado  Tax  Commission,  Report,  1916,  p.  5. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       603 

The  Superoision  of  Local  Assessments.  — The  language  of  the 
Colorado  statute  of  191 1  was  quite  sweeping  in  the  supervisory 
powers  which  it  conferred  upon  the  commission.  All  of  the  cus- 
tomary provisions  relating  to  the  prescription  of  blanks,  the 
summoning  of  witnesses,  visiting  the  counties,  the  direction  of 
local  assessors  to  produce  desired  information,  are  found.  The 
most  significant  authority  conferred  is  clearly  that  of  ordering 
reassessments,  an  action  which  the  commission  may  undertake 
upon  its  own  motion.  From  the  standpoint  of  the  tax  act  the 
Colorado  tax  commission  is  very  well  equipped  with  supervisory 
authority. 

But  the  commission  has  not  been  entirely  successful  in  exercis- 
ing this  authority.  The  county  assessors  are  locally  appointed 
biennially.  This  comparatively  short  term  means  that  the  aver- 
age county  assessor  in  Colorado  is  a  fairly  active  politician;  as 
such,  they  reflected,  and  in  a  few  cases  undertook  to  lead,  the 
local  opposition  to  the  commission's  energetic  revision  of  local 
assessments  in  1913  and  1914.  The  friction  which  has  been 
engendered  has  been  very  detrimental  to  this  phase  of  the  com- 
mission's work.  Of  the  assessor  of  Denver  county  it  has  been 
said  that  the  commission  met  him  more  frequently  in  court 
rooms  than  anywhere  else.^  The  assessor  of  Weld  county  based 
his  opposition  to  the  commission  largely  upon  the  mistaken  belief 
that  the  latter  had  been  subservient  to  corporate  interests.  These 
views  can  only  be  dispelled  by  more  constant  contact  between  the 
local  and  the  state  officials.  The  annual  conference  of  assessors 
has  been  very  useful,  but  it  has  been  only  feebly  supplemented 
by  the  scanty  and  irregular  visits  to  the  counties.  In  other  states, 
notably  Indiana,  a  similar  situation  has  been  found  to  exist.  The 
Colorado  tax  commission  regarded  other  duties  as  more  impor- 
tant than  the  round  of  visits  to  the  counties,  and  in  consequence 
the  latter  has  been  somewhat  neglected. 

Notwithstanding  this  neglect  the  number  of  counties  in  which 
the  assessors  and  boards  of  equalization  have  been  willing  to 
comply  substantially  with  the  commission's  standards  of  local 
assessment  has  steadily  increased,   an  indication  of  lessening 

'  Haig,  op.  cit.,  p.  27. 


604  TEE  STATE  TAX  COMMISSION 

friction  between  the  large  majority  of  county  tax  officials  and  the 
commission.  The  defeat  of  the  bill  to  aboHsh  the  commission  in 
1 91 6  will  doubtless  mark  a  turning  point  in  the  latter 's  history, 
and  if  the  commissioners  possess  the  necessary  tact  and  patience 
they  should  be  able  now  to  restore  their  organization  to  its 
rightful  place  as  the  leader  in  the  fiscal  affairs  of  the  state. 

An  equally  fundamental  requirement  in  this  transformation, 
however,  must  be  a  considerable  improvement  in  the  tax  system 
itself.  The  present  tax  law  should  be  codified  and  many  of  the 
inconsistent  or  conflicting  provisions  removed.  The  authority 
to  order  reassessments  has  never  been  exercised,  chiefly  because 
of  the  physical  impossibility  of  examining  the  assessors'  returns 
during  the  short  period  between  the  date  on  which  these  are 
legally  due  (September  7)  and  the  last  day  on  which  the  commis- 
sion may  order  changes  in  the  assessment  (October  i).  In  these 
same  weeks  the  corporate  appeals  must  also  be  heard. ^ 

It  is  only  natural,  in  view  of  the  stormy  career  of  the  Colorado 
commission,  to  find  that  little  headway  has  been  made  in  secur- 
ing better  listing  of  intangibles.  Appended  to  this  chapter  is  a 
table  showing  the  details  of  the  personal  property  assessment 
since  191 2. ^  It  will  be  seen  from  this  table  that  about  three- 
fourths  of  the  total  increase  in  personalty  assessment  since  191 2 
has  been  contributed  by  tangibles,  notably  five  stock  and  mer- 
chandise. In  view  of  the  nominal  return  of  bank  deposits  and 
credits  under  the  old  regime,  the  actual  amounts  of  these  classes 
added  under  the  influence  of  the  tax  commission  are  quite  sur- 
prising, though  these  figures  represent  only  a  very  small  part  of 
the  total  of  such  property  owned  in  the  state.  The  total  bank 
deposits  in  the  state  in  1916  were  $171,400,000.  In  this  year 
seventeen  counties  returned  no  bank  deposits  for  taxation,  while 
in  twelve  counties  there  were  no  citizens  possessing  taxable 
unsecured  debts,  and  in  thirty-two  counties  none  possessed 
secured  debts  subject  to  taxation.  There  is  little  difference 
between  a  nominal  return  and  no  return  at  all,  and  such  gaps  in 
the  local  tax  duplicate  certainly  indicate  widespread  evasion  of 
the  law.  The  responsibility  is  shared  by  the  legislature,  which  has 
*  Laws  of  Colorado,  1911,  ch.  216,  §§  30,  31.  *  Cf.  below,  p.  625. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       605 

always  hampered  the  commission  by  failing  to  codify  the  law  and 
to  appropriate  sufficient  funds  for  its  use;  and  by  the  system 
itself,  which  is  quite  as  unworkable  in  Colorado  as  in  Massa- 
chusetts. The  commissioners  have  possibly  committed  some  errors 
of  judgment,  as  in  failing  to  estabUsh  closer  personal  contacts 
with  the  local  officials,  but  on  the  whole  their  achievements  have 
been  quite  noteworthy  in  view  of  the  circumstances  under  which 
they  have  had  to  work. 

The  Arizona  Tax  Commission 

Among  the  first  measures  adopted  by  the  legislature  of  Arizona 
upon  admission  to  statehood  was  a  bill  providing  for  the  creation 
of  a  permanent  state  tax  commission.^  The  first  members  were  to 
be  appointed  by  the  governor  for  terms  of  two,  four,  and  six 
years,  respectively,  and  at  the  expiration  of  these  terms  the 
vacancies  were  to  be  filled  by  election,  the  names  of  candidates  ap- 
pearing on  the  regular  ballots  without  partizan  designation.  The 
regular  term  was  to  be  six  years,  and  the  salary  $3000  per  year. 

The  bill  creating  the  tax  commission  made  that  body  a  part  of 
the  state  board  of  equalization,  and  gave  it  original  jurisdiction 
over  the  assessment  of  mines,  and  of  railroad,  express,  sleeping 
car,  and  private  car  companies.  It  was  also  to  exercise  general 
advisory  supervision  over  the  local  assessors.  Ahnost  the  com- 
mission's first  task  was  to  secure  certain  constitutional  changes 
and  a  revision  of  the  tax  laws.  The  constitutional  amendment 
cleared  away  the  former  state  board  of  equahzation,  an  ex 
officio  body  with  membership  prescribed  by  the  constitution, 
and  left  the  legislature  a  free  hand  in  deaUng  with  the  tax  sys- 
tem. The  tax  law  was  revised  in  19 13,  and  the  tax  commission 
was  given  very  extensive  authority  in  equalization  and  in  the 
supervision  of  local  officials.'^ 

The  assessment  of  191 2  was  almost  completed  when  the  tax 
commissioners  took  office,  and  they  decided  to  equalize  for  that 
year  on  a  50  per  cent  basis.    Instructions  to  this  effect  were 

*  The  state  was  admitted  on  February  14, 1912.  The  a.ct,  Laws  of  Arizona,  1912, 
ch.  23,  was  approved  May  9,  1912. 

*  Laws  of  Arizona,  1913,  ch.  71. 


6o6  THE  STATE  TAX  COMMISSION 

issued  to  local  boards  of  equalization  but  they  were  not  always 
observed.  The  county  boards  of  equalization  were  a  law  unto 
themselves,  under  the  former  regime,  and  the  commission  found 
them  favoring  the  dominant  interests  of  their  respective  counties. 
Competition  to  avoid  the  state  tax  was  also  very  common. ^ 

For  the  purpose  of  the  state  equaUzation  the  commission  has 
undertaken  to  secure  from  several  sources  the  data  which  would 
serve  as  an  independent  check  upon  the  local  assessors'  results. 
The  principal  source  has  been  the  annual  conferences  to  which  all 
assessors  have  been  summoned.  These  are  personal  conferences 
between  assessors  and  tax  commissioners,  the  detailed  reports  of 
which  average  well  above  three  hundred  pages  of  closely  printed 
matter.  The  commissioners  quiz  each  assessor  vigorously  and 
intensively  concerning  every  item  in  his  report  that  is  any  way 
suspicious,  and  the  assessors  themselves  do  some  very  frank 
comparing  of  assessed  values.  Out  of  the  direct  testimony  and 
the  mutual  criticism  the  commissioners  derive  certain  impres- 
sions and  data  which  are  drawn  upon  in  the  state  equalization. 
The  conferences  are  attended  by  many  citizens,  and  a  very 
beneficial  result  of  this  broader  contact  has  been  to  clear  away 
the  accumulated  prejudices  and  misunderstandings  of  past  years. 

A  second  source  of  information,  though  not  as  extensive  in  its 
scope  as  the  conferences,  has  been  the  use  of  expert  appraisers  in 
the  valuation  of  real  estate.  In  1914  the  Somers  method  of  land 
valuation  was  appHed  in  certain  districts. ^  A  special  schedule  of 
building  values  was  prepared  for  Nogales  in  1916.^  Such  surveys 
have  been  valuable  in  placing  the  areas  covered  upon  a  more 
accurate  basis  of  valuation,  but  they  have  naturally  afforded  no 
data  for  testing  the  quahty  of  the  real  estate  assessments  in  other 
portions  of  the  state.  They  have  not  greatly  furthered  the  general 
state  equaUzation,  therefore,  although  in  many  other  respects  the 
effect  of  these  surveys  has  been  very  salutary. 

Progress  has  been  made,  also,  in  classifying  and  grading  the 
lands,  especially  those  in  the  various  land  grants,  and  in  compiUng 
more  accurate  returns  of  live  stock.    The  commission,  acting  as 

>  Arizona  Tax  Commission,  Report,  1914,  p.  16. 

2  Ibid.,  p.  20.  '  Ibid.,  1916,  pp.  36-43- 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       607 

the  state  board  of  equalization,  has  gone  about  the  task  of  equali- 
zation with  great  vigor,  and  has  fearlessly  probed  into  the  results 
of  the  local  assessment.  The  usual  procedure  has  been  for  the 
board  of  equalization  to  vote  that  the  state  tax  commission  and 
the  local  assessors  have  not  adjusted  valuations  with  reasonable 
uniformity,  and  then  proceed  to  substitute  its  own  amended 
schedule.  1 

While  the  resolution  with  which  the  state  board  of  equalization 
always  prefaces  its  own  work  regularly  states,  and  justly  so,  that 
the  local  valuations  are  not  uniform,  the  board's  own  action  has 
usually  been  confined  to  a  few  classes  of  property,  as  is  shown  both 
by  the  number  of  changes  and  by  the  aggregate  volume  of  changes 
in  the  local  returns.  The  extensive  powers  of  control  which 
the  Arizona  commission  enjoys  over  the  original  local  assessment 
permits  of  a  close  correlation  of  the  state  equalization  with  the 
local  assessment,  and  the  former  serves  as  an  additional  check 
upon  the  work  of  the  assessors.  The  adjustments  in  the  property 
valuations  determined  by  the  commission  are  made  principally 
upon  appeals  from  the  corporations  affected.  The  commission 
wisely  enough  refrains  from  attempting  to  include  intangibles  in 
the  equalization,  though  recognizing  the  inadequacy  of  the  local 
assessment  of  such  property.  The  progress  in  this  correlation 
of  assessment  and  equalization  is  well  described  in  the  following 
extract  from  a  personal  letter :  ^ 

The  Commission  also  checks  the  work  of  the  assessors  during  the  time  of 
assessment  by  visiting  the  counties.  As  the  work  of  the  Commission  goes 
forward,  greater  classification  is  being  brought  about  and  special  methods 
applied,  so  that  the  work  of  checking  is  becoming  more  simplified  and  there- 
fore more  comprehensive.  As  for  instance,  the  idea  of  the  Somers  System 
of  valuing  real  estate,  a  certain  price  on  different  makes  of  automobiles, 
the  method  of  calculating  range  cattle,  stocks  of  merchandise  under  the  in- 
ventory, and  the  book  cost  of  all  mining  machinery  and  reduction  works. 
Money  and  credits  are  not  now  taxed,  though  payable  under  the  law.  The 
Commission  has  recommended  and  will  recommend  a  small  mill  tax  on  this 
class  of  personalty.  AU  other  intangibles  are  taxed,  or  will  be  taxed.  In- 
stances of  some  of  the  escaping  intangibles  are  meat  markets,  packing  com- 
panies and  moving  picture  shows.  They  all  do  a  large  business  on  small 
physical  property  and  are  as  yet  assessed  only  on  their  physical  property. 

*  Cf.  Arizona  Tax  Commission,  Report,  1913,  p.  5;  ibid.,  1914,  p.  11. 

*  Personal  Letter  from  Commissioner  C.  M.  Zander,  November  27,  1914. 


6o8  THE  STATE  TAX  COMMISSION 

The  corporate  property  assessed  by  the  tax  commission  is 
valued  on  a  combination  of  capitalized  earnings  and  stock  and 
bond  valuation.  The  state  corporation  commission  has  been 
valuing  various  companies  for  rate  purposes,  and  as  this  is  done 
the  tax  commission  adopts  the  same  valuation  for  taxation  pur- 
poses.^ This  practice  has  not  been  followed  consistently  for  in  1 916 
the  tax  commission  was  apparently  using  the  capitaHzed  net 
earnings  as  the  assessed  value  for  all  productive  railroads.  The 
net  earnings  over  a  period  of  years,  ascertained  for  each  year  by 
deducting  from  gross  earnings  the  operating  expenses  plus  taxes, 
insurance,  hire  of  equipment,  and  a  reasonable  amount  for  excess 
terminal  faciUties,  were  capitalized  at  8  per  cent.  Railroads  not 
showing  net  earnings  equal  to  8  per  cent  were  assessed  on  the 
physical  reconstruction  basis.^ 

The  telegraph  and  telephone  compam'es  have  been  assessed  by 
the  same  methods  as  those  used  in  the  case  of  railroads.  Private 
car  lines  are  said  to  be  assessed  by  taking  into  consideration  the 
mileage  within  the  state  as  well  as  the  gross  and  net  earnings.^ 
This  is  a  rather  vague  statement  which  does  not  make  clear  the 
commission's  exact  procedure.  The  taxation  of  this  class  of  cor- 
porations is  everywhere  unsatisfactory,  and  it  is  doubtful  if  the 
Arizona  commission  has  entirely  solved  the  problem.  Express 
companies  are  taxed  on  their  gross  earnings,  though  the  com- 
mission has  consistently  recommended  the  extension  of  the  ad 
valorem  system  to  them. 

The  taxation  of  mines  has  caused  much  more  difficulty  in 
Arizona  than  any  other  duty  imposed  upon  the  commission.  The 
metalhferous  mines  were  evidently  greatly  undertaxed  by  the 
former  methods  and  administration.  Indeed,  there  appear  to  be 
sharp  differences  of  opinion  in  the  state  as  to  the  proper  method  of 
taxing  these  mines,  a  difference  which  has  been  much  in  evidence 
in  the  discussions  of  the  tax  commission  itself.*  The  principal 
point  of  disagreement  has  been  over  the  ad  valorem  assessment 
versus  some  form  of  specific  taxation.    A  majority  of  the  com- 

1  Arizona  Tax  Commission,  Report,  1914,  p.  15. 

*  Ibid.,  1916,  p.  18.  ^  Ibid.,  pp.  19,  20, 

*  Cf.  Arizona  Tax  Commission,  Report,  1914,  pp.  33-78,  for  majority  and  minor- 
ity reports  on  mine  taxation. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       609 

mission  has  advocated  a  valuation  of  mining  property  and  a 
survey  of  the  existing  ore  resources  by  the  commission  itself, 
following  in  general  the  methods  of  Michigan  and  Minnesota. 

In  response  to  this  clash  of  interests  the  legislature  has  changed 
the  system  of  mine  taxation  several  times  in  recent  years.  In 
1907  the  so-called  "  bullion  tax  law  "  called  for  an  assessment  for 
taxation  equal  to  25  per  cent  of  the  annual  gross  output. ^  Under 
that  law  the  aggregate  mine  valuation  was  about  $20,000,000. 
In  1 91 3  the  legislature  enacted  a  law  providing  for  an  annual 
assessment  at  four  times  the  net  plus  12^  per  cent  of  the  gross 
output.'^  Under  this  method  the  assessed  valuation  was  increased 
to  $110,000,000.  The  issue  of  mine  taxation  has  figured  large  in 
the  whole  policy  of  the  commission,  and  it  has  even  led  to  at- 
tempts to  aboUsh  the  board.  A  bill  to  this  effect  passed  the  senate 
in  1914  but  did  not  come  to  a  vote  in  the  house.  One  or  more 
members  of  the  commission  has  based  his  campaign  for  election 
upon  the  mine  tax  issue.  For  the  first  time  in  its  history,  the 
legislature  adjourned  in  19 14  without  a  new  mine  tax  law,  and 
the  commission  was  given  a  free  rein.  A  system  of  assessment  on 
the  basis  of  capitalized  net  earnings  was  promptly  adopted.' 

The  principal  features  of  this  new  system  of  mine  taxation  were 
the  classification  of  the  mines  into  eight  classes,  the  basis  of 
division  being  the  nature  of  the  ore  mined  and  the  future  prospects 
of  the  individual  mine,  and  the  determination  of  rates  of  capitali- 
zation for  each  class.  No  allowances  were  made  for  mine  deple- 
tion, interest,  new  construction,  as  these  items  were  considered  in 
establishing  the  rates  of  capitalization.  The  average  annual  net 
earnings  for  a  three-year  period  were  capitalized  at  rates  ranging 
from  15  per  cent  to  33^  per  cent.  From  this  valuation  was 
deducted  the  assessed  value  of  the  property  assessed  locally.  In 
1916  the  aggregate  mine  assessment  was  $172,000,000,  exclusive 
of  mining  machinery,  smelters,  and  improvements  on  mining 
property  aggregating  nearly  $39,000,000.* 

*  Laws  of  Arizona,  1907,  ch.  20. 

*  Ibid.,  Third  Special  Session,  1913,  ch.  71. 

'  Arizona  Tax  Commission,  Report,  1916,  pp.  7-17.  The  net  earnings  method 
was  chosen  because  of  the  short  time  remaining  to  make  the  1915  assessment. 

*  Arizona  Tax  Commission,  Report,  1916,  p.  8. 


6lO  THE  STATE  TAX  COMMISSION 

Supervision  of  the  Local  Assessments.  —  As  rexdsed  in  1913,  the 
law  gave  the  tax  commission  plenary  powers  over  the  local  asses- 
sors, including  the  power  to  order  the  reassessment  of  property  on 
its  own  motion.  Removal  proceedings  must  follow  the  usual  legal 
channels,  but  the  chairman  of  the  commission  writes  that  it  has 
been  entirely  unnecessary  to  resort  to  such  means  of  influencing 
the  local  assessments.^  The  members  of  the  commission  have 
regularly  visited  the  counties  and  by  means  of  visits,  correspond- 
ence, and  public  hearings,  they  have  maintained  the  contact  with 
ofl&cials  and  taxpayers  that  all  tax  commissions  now  seek  to 
establish.  One  of  the  most  interesting  events  of  the  assessor's 
year  must  be  the  annual  confeirence  to  which  all  assessors  are 
called.  In  this  conference  standards  of  valuation  and  methods  of 
procedure  are  agreed  upon  under  the  guidance  of  the  tax  com- 
mission, and  if  the  assessor's  later  returns  do  not  indicate  sub- 
stantial comphance  with  these  standards  he  is  promptly  required 
to  show  cause  for  the  variation.  The  commission  is  gradually  per- 
fecting its  independent  checks  upon  the  assessor's  work,  and  in  the 
annual  conferences  it  steadily  insists  upon  an  explanation  of  any 
changes  that  may  be  reported  from  any  county  with  regard  to  any 
class  of  property. 

The  Arizona  tax  dupKcate  has  evidently  not  yet  been  expanded 
to  include  a  long  Hst  of  items,  devised  in  the  hope  of  stimulating 
the  memory  of  taxpayer  and  assessor,  and  in  the  faith  that  this 
stimulus  to  memory  will  serve  as  an  efi&cient  safeguard  against 
evasion.  It  is  not  possible,  therefore,  to  discuss  in  detail  the  opera- 
tion of  the  general  property  tax,  especially  with  regard  to  the 
assessment  of  intangibles.  The  commission  has  freely  admitted 
its  failure  at  this  point,  however,  and  has  steadily  recommended  a 
flat  tax  on  moneys  and  credits.'^  This  recommendation  has 
received  no  particular  emphasis  in  the  reports,  and  because  of  the 
relative  unimportance  of  these  classes  of  property  it  has  never 
attained  the  prominence  that  has  been  accorded  other  tax  prob- 
lems, notably  the  taxation  of  mines.  The  commission's  silence 
and  comparative  inaction  on  this  matter  can  be  readily  under- 

'  Personal  Letter  from  Commissioner  C.  M.  Zander,  November  29,  1914. 
*  Arizona  Tax  Commission,  Report,  1914,  p.  80;  ibid.,  1916,  p.  23. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES      6ll 

stood.  Property  taxation  under  the  uniform  rule,  in  Arizona  as 
elsewhere,  is  substantially  the  taxation  of  tangibles.  The  general 
property  tax  is  operating  to  no  better  advantage  in  this  sparsely 
populated  western  state  than  it  is  in  the  wealthier  and  more 
populous  states  farther  east. 

In  conclusion  it  must  be  said  that  the  Arizona  tax  commission, 
and  especially  its  vigorous  former  chairman,  have  been  very 
successful  in  stirring  up  thought  on  matters  of  taxation.  The 
issues  have  probably  not  always  been  cleared  by  the  stirring,  but 
they  have  certainly  been  brought  to  public  attention.  Referring 
to  the  turbulent  scenes  that  followed  the  higher  valuations,  the 
former  chairman  remarked  in  19 14  that  geology  teaches  that 
Arizona  is  a  land  of  extinct  volcanoes,  but  the  recent  campaign 
for  higher  assessments  revealed  that  geology  was  wrong.* 

Thus  far  popular  sentiment  has  apparently  been  with  the  com- 
mission, and  has  sustained  its  efforts  for  more  equitable  taxation. 
But  one  reason  for  this  attitude  may  have  been  in  the  fact  that 
the  commission  has  been  increasing  the  taxes  of  mine  owners  and 
of  other  corporate  interests,  all  of  which  have  undoubtedly 
deserved  a  higher  assessment.  But  when  these  properties  have 
been  raised  to  full  value  and  when  they  in  turn  demand  a  leveling 
up  elsewhere,  one  weakness  of  the  Arizona  law  will  come  out.  The 
people  will  then  find  tax  reform  coming  closer  home,  and  there 
may  be  the  same  sort  of  revulsion  of  popular  feeling  that  so 
hampered  the  Michigan  commission  in  1905.  This  possible 
change  of  attitude  may  have  peculiarly  disastrous  effects  in 
Arizona  because  of  the  fact  that  the  office  of  tax  commissioner  is 
elective.  The  recent  campaign  of  Mr.  C.  M.  Zander,  fought  suc- 
cessfully on  the  issue  of  mine  taxation,  shows  the  possibility  for 
appealing  to  popular  feeling  or  advantage.  Such  echoes  of  this 
campaign  as  reached  the  writer  indicated  that  it  was  very  hotly 
contested.  The  office  of  tax  commissioner  involves  too  serious 
administrative  responsibihties  to  permit  of  such  methods  of 
selection.  The  writer  believes  that  in  the  election  in  question  the 
people  chose  wisely;  but  it  need  signify  no  deep  distrust  of  demo- 
cratic institutions  to  suggest  that  the  electorate  is  hardly  qualified 

^  Arizona  Tax  Commission,  Report,  1914,  pp.  10,  11. 


6l2  THE  STATE  TAX  COMMISSION 

to  select,  at  long  range,  the  person  best  fitted  to  assume  the 
duties  of  a  tax  commissioner,  and  that  its  future  choices  may  not 
always  be  as  wise  as  was  that  of  1914. 

The  State  Tax  Commission  of  South  Dakota  ^ 

The  general  property  tax  developed  in  South  Dakota  during  the 
territorial  period,  and  was  perpetuated  by  the  constitution 
adopted  in  1889.^  The  characteristic  administrative  organization 
had  been  provided  before  statehood  was  attained,  including 
locally  chosen  assessors  and  county  boards  of  equalization  and  an 
ex  officio  territorial  board  of  equalization.  It  is  unnecessary  to 
state  that  the  results  obtained  by  this  administrative  organization 
were  not  satisfactory,  even  during  the  territorial  period.  The 
auditor  recommended  in  1889  that  a  better  system  of  assessment 
and  equaHzation  be  adopted.^ 

The  first  general  revenue  act  of  the  new  state  was  passed  in  189 1 
but  an  ex  officio  state  board  of  equaHzation  was  estabhshed  in 
1890.*  This  board  was  empowered  to  raise  or  lower  assessments 
among  the  counties,  and  to  assess  the  property  of  the  railroad, 
telegraph,  telphone,  express,  and  sleeping  car  companies.  The 
career  of  the  South  Dakota  board  of  equaHzation  has  been  one  of 
almost  unreHeved  failure,  both  with  respect  to  the  equaHzation  of 
assessments  and  the  valuation  of  corporate  property.  In  addition 
to  the  composition  of  the  board  and  the  inherent  difficulties  of  the 
general  property  tax,  there  have  been  certain  local  factors  which 
have  made  the  board's  failure  more  complete. 

In  the  first  place,  the  legislature  has  omitted  the  necessary 
appropriations  from  a  number  of  laws  designed  to  make  better 
administration  possible.  In  fact,  so  regular  did  this  practice 
become  that  it  could  hardly  have  been  mere  oversight.  For 
example,  a  special  tax  commission  was  provided  in  1897  to  report 

^  I  am  indebted  to  the  secretary  of  the  South  Dakota  Tax  Commission  for  a 
valuable  collection  of  extracts  from  the  public  documents.  The  historical  material 
thus  obtained  has  been  very  useful. 

*  Constitution  of  South  Dakota,  1889,  Article  XI,  §  2. 

*  Territorial  Auditor,  Report,  1889,  pp.  150,  151. 

*  Laws  of  South  Dakota,  1891,  ch.  14;  ibid.,  1890,  ch.  20. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       613 

a  better  revenue  system,  but  for  lack  of  funds  nothing  was  done.' 
Two  laws  of  1905,  providing  respectively  for  annual  conferences 
of  the  county  auditors  with  the  state  board  of  equalization  and 
for  investigation  and  inspection  by  the  latter  of  the  local  assess- 
ments, have  proved  of  httle  practical  advantage  because  of  the 
omission  of  the  necessary  appropriations.^ 

A  second  factor  illustrates  very  well  the  weakness  of  the  lack  of 
supervisory  and  corrective  authority.  In  common  with  the 
majority  of  such  boards,  the  South  Dakota  board  of  equalization 
has  had  no  authority  to  list  omitted  property  even  in  those  cases 
in  which  it  was  perfectly  clear  that  evasion  was  being  practiced. 
It  has  been  compelled  to  witness  the  withdrawal  of  moneys, 
credits,  merchandise,  and  even  land  from  the  tax  roll,  and  to  make 
good  this  shrinkage  by  raising  the  valuation  of  the  property  which 
remained,  regardless  of  the  injury  done  thereby  to  individual  tax- 
payers. Thus  Douglas  county  returned  247,935  acres  of  land  in 
1895  and  only  183,408  acres  in  1896,  although  a  considerable 
amount  of  land  had  been  "  proved  up  "  in  this  county  during  the 
year  in  question.^ 

The  peculiar  provisions  of  the  state  constitution  supply  a  third 
local  factor  which  has  hindered  the  state  board  of  equalization  in 
its  work.  These  provisions  require  that  the  property  of  corpora- 
tions be  assessed  in  the  same  manner  as  the  property  of  individuals. 
In  1 910  the  court  held  that  this  excluded  consideration  of  gross 

*  State  Auditor,  Report,  1900,  pp.  Lx-xii. 

*  Laws  of  South  Dakota,  1905,  chs.  40  and  42.  Cf.  Exaugural  Message  of  Gov- 
ernor Crawford,  Januar>'  5,  1909.    H.  J.  1909,  pp.  35-40. 

'  It  would  be  difficult  to  match  the  following  bit  of  chicanery  from  the  local 
annals  of  any  state.  In  1896  Union  county  returned  bank  assessments  as  follows: 
"  Moneys  of  banks,  $9,416;  credits  of  banks,  $9,780;  bank  stock,  none."  Since 
the  banks  of  this  county  had  considerable  capital,  the  state  board  raised  the  "  credits 
of  banks  "  in  Union  county  300  per  cent,  and  certified  this  action  to  the  county 
board.    In  the  following  September  the  latter  adopted  the  resolution  below: 

"  It  appearing  to  the  satisfaction  of  the  board  that  the  assessment  for  1896  of 
the  Union  County  Bank  and  the  Citizens'  Bank  were  erroneously  entered  in  the 
assessor's  book  under  the  head  of '  credits  '  when  the  same  should  have  been  entered 
as  '  moneys  of  banks,'  therefore  the  auditor  is  directed  to  strike  out  such  assess- 
ment under  the  head  of  '  credits '  and  to  enter  the  same  under  the  head  of  '  moneys 
of  banks  '  at  the  same  respective  valuations  as  returned  by  the  assessor  under  the 
head  of  'credits.'  "  Quoted  in  Letter  of  Transmittal  of  Report  of  State  Auditor, 
1896. 


6l4  THE  STATE  TAX  COMMISSION 

earnings,  and  the  appellant  company  (The  Wells  Fargo  Express 
Company)  received  in  consequence  a  reduction  of  taxes  from 
$8ii6  to  $517.1 

There  is  no  intention  to  exonerate  wholly  the  state  board  of 
equalization  by  this  brief  recital  of  the  local  obstructions  to  better 
administration.  Being  an  ex  officio  board,  and  having  to  deal 
with  the  locally  administered  general  property  tax,  it  would  in  all 
probability  have  failed  without  them.  They  do  make  the  failure 
more  complete  than  it  would  otherwise  have  been.  Various  state 
officials  have  realized  the  situation,  and  have  occasionally  sug- 
gested a  certain  degree  of  central  supervisory  control.  Thus, 
Governor  Mellette  said,  in  1893,  that  the  only  way  to  secure 
uniformity  was  through  a  state  board  with  power  to  adopt  and 
enforce  regulations  for  the  guidance  of  assessors.^  Three  years 
later  the  state  auditor  proposed  a  "  tax  statistician  and  adjuster  " 
who  should  seek  out  and  list  omitted  property  and  make  other 
adjustments  after  the  state  equalization.^  In  1905  Governor 
Herreid  recommended  the  appointment  by  the  state  board  of 
equalization  of  a  "  state  tax  commissioner  "  who  should  super- 
vise the  assessors,  establish  standard  valuations  for  various 
classes  of  taxable  property,  and  secure  uniformity  of  action  by 
the  assessors.'* 

These  suggestions  are  indicative  of  the  slow  but  gtadual  evolu- 
tion of  opinion  on  the  subject  of  central  administration.  The 
general  problem  was  considered  again,  and  more  definite  recom- 
mendations were  advanced,  by  a  special  tax  commission  which 
reported  in  1911.^  This  commission  did  not  make  an  elaborate 
investigation  of  tax  conditions  in  South  Dakota,  although  even  a 
superficial  observation  sufficed  to  establish  the  case  against  the 
tax  system.  Greater  emphasis  was  laid,  in  its  recommendations, 
however,  upon  the  need  of  stronger  central  administrative  control 

*  214  Fed.  Rep.  180. 

-  Exaugural  Message  of  Governor  Mellette,  January  3,  1893.    H.  J.  1893,  p.  13. 
'  State  Auditor,  Report,  1896,  pp.  vi-xi. 

*  Exaugural  Message  of  Governor  Herreid,  January  3,  1905.  H.  J.  1905,  pp.  29, 
30. 

^  The  report  was  not  published.  A  manuscript  copy  is  in  the  office  of  the  state 
tax  conunission. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATRS       615 


than  upon  the  need  of  changing  the  tax  system.  The  latter  would 
require  a  constitutional  amendment,  while  there  was  some  pros- 
pect of  relief  through  administrative  reform  without  a  revision  of 
the  organic  law.  In  1913  the  proposals  for  the  creation  of  a  state 
tax  commission  were  accepted  by  the  legislature.' 

The  state  tax  commission  of  South  Dakota  was  to  consist  of 
three  members,  appointed  by  the  governor  with  the  consent  of  the 
senate,  for  a  regular  term  of  six  years  at  an  annual  salary  of  $2000. 
The  governor  was  to  select  persons  known  to  possess  knowledge 
of  the  subject  of  taxation.  The  principal  duties  of  the  new  com- 
mission were  the  state  equahzation,  the  assessment  of  certain 
classes  of  corporations  (those  formerly  assessed  by  the  state  board 
of  equalization),  and  the  supervision  of  the  local  officials.  In  19 15 
the  inheritance  tax  law  was  revised,  and  the  tax  commission  was 
placed  in  charge  of  its  administration. ^ 

The  results  which  have  been  accompHshed  by  the  tax  com- 
mission may  be  best  appreciated  by  an  examination  of  the  figures 
showing  the  course  of  assessments  of  all  property.  These  figures 
are  given  in  the  following  table :  ^ 

Assessment  of  all  Property  in  South  Dakota,  1911-16  (millions) 


Year 


Farm  lands 
and  struc- 
tures 

Lots  and 
improve- 
ments 

Other 
lands 

Personal 
property 

Corporate 
property  ♦ 

$214.9 

$38.2 

$3-7 

$58.6 

$34-2 

220.0 

40-3 

3-9 

55-9 

34-2 

764.8 

IIO.O 

17.7 

170.5 

132.1 

782.6 

106.0 

25.8* 

169.4 

137-6 

818.4 

I08.I 

26.2' 

180.2 

138.S 

832.7 

109.9 

27.4* 

194.9 

138.S 

Total 


1911 
1912 

1913 
1914 

1915 
1916 


S349.6 
354-3 
I.I95-I 
1,221.4 
1,271.6 
1,303- 1 


The  most  significant  thing  revealed  by  these  figures  is  the 
immense  increase  in  values  in  the  first  assessment  made  in  19 13 
under  the  supervision  of  the  new  tax  commission.  The  new  mem- 
bers had  entered  office  filled  with  the  determination  to  see  all 

>  Laws  of  Soulh  Dakota,  1913,  ch.  352.  *  Ibid.,  1915,  ch.  217. 

*  Compiled  from  the  reports  of  the  Commission. 

*  Includes  those  corporations  centrally  assessed  only. 
'  Includes  unplatted  lands  in  cities  after  1914. 


6l6  TEE  STATE  TAX  COMMISSION 

property  placed  in  the  duplicate  at  full  value,  and  this  table  pre- 
sents the  results  of  their  efforts.  These  efforts  have  included 
conferences  with  the  assessors  in  most  if  not  all  counties,  an 
extensive  correspondence,  and  the  use  of  improved  forms  for  the 
assessment  roll.  In  1916  a  brief  but  serviceable  assessors'  manual 
was  issued. 

In  the  second  place,  the  total  assessment  of  property  has  con- 
tinued to  grow,  even  after  the  initial  increase.  The  tax  com- 
mission has  retained  its  aggressive  temper,  and  has  succeeded  in 
keeping  the  aggregate  assessed  valuation  moving  upward. 

But  it  will  be  observed  that  this  subsequent  increase  has  been 
made  almost  entirely  by  the  two  groups  of  farm  lands  and  per- 
sonal property.  City  lots  and  improvements  thereon  were 
assessed  higher  in  19 13  than  in  any  later  year  to  1916,  and  the 
corporate  property  assessed  by  the  commission  has  remained 
practically  constant  in  the  last  three  years. 

Finally,  the  table  above  furnishes  a  starting  point  for  a  brief 
discussion  of  certain  aspects  of  the  tax  commission's  work.  The 
first  of  these  is  the  function  of  equalization. 

The  power  of  the  South  Dakota  commission  in  equaHzation  is 
very  comprehensive.  It  is  expressly  authorized  to  equahze  among 
individuals  and  townships  as  well  as  among  counties  and  among 
classes  of  property.  The  legislature  evidently  intended  that  the 
function  of  equalization  should  be  a  very  important  means  by 
which  inequalities  in  the  local  assessment  were  to  be  corrected. 
The  commission  nowhere  refers  to  its  method  of  equalization 
either  of  real  estate  or  of  personal  property  aside  from  one  brief 
allusion  to  the  treatment  of  the  returns  of  automobiles.  It  is 
impossible,  therefore,  to  judge  the  soundness  and  precision  of  the 
results.  Furthermore,  the  discontinuance  of  the  practice  of 
publishing  both  the  local  and  the  equalized  valuation  of  the  vari- 
ous classes  of  property,  with  the  change  made  by  the  commission 
in  each  county,  makes  it  impossible  to  discover  whether  there  is 
greater  or  less  activity  in  equalization  than  in  the  first  biennium. 

The  local  returns  were  dealt  with  quite  vigorously  in  this  first 
biennial  period,  and  changes  were  made  in  the  assessment  of  farm 
lands  in  practically  every  county.   The  changes  in  the  returns  of 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       617 

personal  property  were  less  extensive,  although  few  classes 
escaped  with  no  correction  at  all  by  the  tax  commission.  These 
equalizing  corrections  were  apparently  confined  to  the  county 
totals,  and  no  attempt  was  made  to  check  up  the  equity  of  the 
individual  assessments  or  the  intracounty  equalization.  In 
advocating  the  establishment  of  a  county  assessor  in  191 6,  the 
commission  advanced  the  argument  that  an  adequate  inspection 
of  the  work  of  the  local  assessors  was  impossible,  and  that  nothing 
of  this  sort  was  undertaken  except  in  appeal  cases. ^  The  work  of 
the  county  boards  of  equahzation  was  said  to  be  equally  unreli- 
able, with  the  result  that  many  local  inequalities  undoubtedly 
escape  attention  and  correction  under  the  process  of  equalization 
as  now  performed. 

The  tax  commission  has  no  set  rule  for  the  determination  of 
corporate  valuations,  and  consequently  reUes  in  a  large  measure 
upon  the  judgment  of  the  members. ^  The  board  of  railroad  com- 
missioners is  required  to  prepare  an  estimate  of  the  value  of  rail- 
road property  in  the  state  for  the  use  and  guidance  of  the  tax 
commission.  In  preparing  this  estimate  the  railroad  commis- 
sioners are  authorized  to  employ  an  expert  if  this  seems  desirable. 
Figures  of  this  sort  doubtless  bulk  large  in  the  independent  cal- 
culations of  the  tax  commissioners.  No  data  are  available  as  to 
the  relative  weight  given  to  the  various  factors  called  for  in  the 
reports  required  of  the  different  classes  of  corporations.  While  it 
is  true,  as  Professor  Adams  says,  that  an  ad  valorem  assessment 
of  corporate  property  is  ultimately  and  at  bottom  a  matter  of 
judgment,  it  is  highly  important  that  the  judgment  be  aided  and 
guided  by  the  most  thorough  and  careful  consideration  possible  of 
all  the  available  data  bearing  on  the  value  of  the  property.  A 
sound  technique  in  handling  these  materials  is  an  essential  req- 
uisite to  the  exercise  of  proper  judgment  in  their  modification  for 
the  purpose  of  establishing  a  proper  valuation  for  taxation. 

The  table  above  reveals  a  rather  striking  increase  in  the  assess- 
ment of  personal  property,  not  only  in  the  first  year  of  central 

1  South  Dakota  Tax  Commission,  Report,  1916,  pp.  7-15. 

*  Interview  with  H.  B.  Chapman,  Secretary  to  the  Commission,  .\ugust  30,  1916. 


6l8  THE  STATE  TAX  COMMISSION 

supervision  but  also  in  the  last  two  years  covered  by  these  figures. 
It  will  be  of  interest  to  analyze  these  figures  further  since  the 
details  of  the  personal  property  schedule  will  shed  light  upon  one 
of  the  most  important  questions  in  American  taxation  —  the 
operation  of  the  general  property  tax  under  centralized  adminis- 
tration. This  analysis  is  presented  as  an  appendix  to  the  chapter.^ 

The  details  of  the  personal  property  assessment  before  191 3  are 
not  available  but  the  experience  of  South  Dakota  during  the  past 
four  years  establishes  conclusively  the  breakdown  of  the  general 
property  tax  in  that  state.  It  is  the  famihar  story  of  the  failure  to 
secure  an  adequate  return  of  intangibles,  the  essential  inequality 
of  uniform  taxation.  The  increase  in  the  total  of  personalty, 
when  seen  in  detail,  proves  to  have  been  an  increase  primarily  in 
a  few  classes  of  tangibles,  notably  live  stock  and  vehicles.  The 
strict  provisions  for  forcing  a  return  of  intangible  property  have 
been  useless  legislation.  One  of  these,  the  penalty  for  failure  to 
declare  property,  has  recently  been  sustained  by  the  court.^ 
Though  the  penalty  for  the  omission  was  collected  in  this  case,  it 
will  have  no  appreciable  effect  in  stimulating  fuller  returns  of  such 
property.  The  commission  recognizes  the  futility  of  the  present 
situation  and  in  191 6  was  sponsor  for  a  number  of  constitutional 
amendments,  among  them  one  providing  for  the  classification  of 
property  for  taxation.   This  amendment  was  defeated.^ 

Other  proposals,  not  resting  upon  constitutional  changes,  in- 
clude the  establishment  of  the  county  assessor  system,  less  fre- 
quent assessment  of  real  estate,  the  adoption  of  a  state  budget 
system  and  numerous  other  minor  suggestions.^  The  commission 
admitted  its  inability  to  supervise  adequately  the  host  of  district 
assessors,  and  asserted  that  because  of  this  condition  serious 
inequality,  evasion,  and  undervaluation  still  existed.  A  limited 
number  of  reassessments  have  been  ordered,  but  the  total  addition 
to  the  tax  duplicate  in  this  way  has  been  inconsiderable. 

^  See  below,  p.  626. 

-  Reported  in  the  Bulletin  0}  the  National  Tax  Association,  ii,  pp.  115,  116, 
January,  191 7. 

3  National  Tax  Bulletin,  ii,  p.  47,  November,  1916.  This  was  the  third  defeat 
for  such  a  proposition  since  1908.  Nevertheless,  the  same  program  is  before  the 
people  again  at  the  next  general  election.    Ibid.,  p.  202,  April,  1917. 

*  South  Dakota  Tax  Commission,  Report,  1916,  p.  6. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       619 

The  State  Tax  Commission  of  Nevada 

In  the  task  of  reforming  the  administration  of  the  tax  system, 
the  citizens  of  Nevada  encountered  a  situation  which  differed 
from  that  of  most  western  states  on  account  of  the  peculiar 
economic  conditions  that  have  prevailed  and  because  of  certain 
features  of  the  revenue  system.  The  population  is  small,  though 
the  land  area  of  the  state  is  large.  Much  of  the  land  is  arid  desert, 
and  a  considerable  proportion  of  the  arable  and  pasture  land  is 
held  by  the  large  ranch  owners  and  devoted  chiefly  to  stock  rais- 
ing. Agriculture  is  conducted  as  an  auxihary  industry  to  stock 
raising.  The  other  leading  industry  is  mining.  The  census  returns 
for  1910  show  that  about  10  per  cent  of  the  26,600  homes  in 
Nevada  are  located  in  country  districts.  This  small  minority, 
however,  together  with  the  banks  which  finance  their  agricultural 
pursuits,  are  in  control  in  the  state.  They  are  opposed  to  land 
subdivision  and  an  increase  of  the  rural  population,  with  its  sub- 
stitution of  intensive  farming  for  stock  raising.  They  are  also 
naturally  interested  in  paying  as  small  a  share  of  the  common  tax 
burden  as  possible. 

The  basis  of  the  state  revenue  system  is  of  course  the  general 
property  tax.  The  state's  own  revenues  are  derived  principally 
from  a  direct  tax,  levied  as  a  rated  instead  of  as  an  apportioned 
tax,  upon  the  locally  assessed  valuations.  Under  the  constitution, 
the  legislature  must  ILx  this  rate  of  levy  for  two  years  in  advance, 
using  the  appropriations  and  the  estimated  assessed  value  in 
determining  it.  Without  central  supervision  of  the  local  assess- 
ment it  has  been  an  easy  matter  for  the  assessors  to  reduce  their 
local  duplicates  until  the  previously  established  state  levies  would 
not  yield  sufi&cient  revenue  to  meet  the  state  expenses.  Fortu- 
nately for  all  concerned  the  constitutional  limit  on  the  state  debt 
was  only  $300,000,  so  that  a  policy  of  deficit  financiering  by  bor- 
rowing to  pay  current  expenses  could  be  of  short  duration.  The 
aggregate  deficit  for  the  years  1909-12  inclusive  was  $481,769.* 
By  the  end  of  this  period  the  bond  limit  had  been  reached  and  the 
impending  revenue  crisis  forced  some  action  to  relieve  the  state 

treasury. 

1  Nevada  Tax  Commission,  Report,  1914,  p.  5. 


620  THE  STATE  TAX  COMMISSION 

The  outcome  of  the  prehminary  discussion  was  the  creation  of  a 
Citizens*  Committee  on  Economy  and  Taxation.  This  committee 
did  not  make  an  elaborate  investigation,  but  its  researches  were 
sufficient  to  disclose  the  fundamental  weaknesses  of  the  existing 
tax  system.^  The  tax  reform  program  suggested  as  the  result  of 
this  brief  study  included  the  repeal  of  all  constitutional  provisions 
requiring  uniformity  of  assessment  and  taxation ;  the  abolition  of 
the  state  tax  and  bullion  agent,  and  the  establishment  of  a  state 
tax  commission.^  Of  these  recommendations  the  only  one  acted 
upon  was  that  for  the  creation  of  the  state  tax  commission,  which 
was  provided  in  1913.^  It  was  to  consist  of  three  members,  two 
of  whom  were  to  be  appointed  by  the  governor  for  a  term  of 
four  years  at  a  salary  of  $3000.  The  third  member  was  to  be  the 
first  associate  commissioner  of  the  state  railroad  commission,  ex 
officio.  He  was  to  act  as  chairman,  and  without  additional  com- 
pensation for  his  services  on  the  tax  commission.  The  commission 
was  to  make  the  state  equalization,  assess  certain  classes  of  cor- 
porations and  exercise  general  supervision  over  the  tax  system. 

State  equalization  by  an  ex  officio  board  had  been  introduced  in 
1 89 1,  but  the  results  did  not  meet  with  popular  approval  and  the 
board  was  abolished  in  1903.*  In  1901  the  county  assessors  were 
constituted  a  state  board  of  assessors,  which  was  required  to  meet 
annually  at  Carson  City  and  assess  certain  classes  of  property.^ 
With  the  aid  of  the  railroad  commission  the  assessed  values  of 
railroads  were  increased,  but  the  board  soon  became  the  tool  of 
the  railroad  interests.  Reference  has  been  made  to  the  tactics 
employed  in  1906.® 

It  was  but  natural  that,  under  the  conditions  existing  in 
Nevada,  serious  inequalities  should  develop  in  the  actual  basis  of 
assessment.  As  a  result  of  its  investigations  the  commission 
estimated  that  the  following  variations  in  the  ratio  of  assessed  to 
true  value  were  typical :  ^ 

'  Report  of  the  Citizens^  Committee  on  Economy  and  Taxation,  pp.  99-101. 

*  Ibid.,  pp.  99-101. 

*  Laws  of  Nevada,  1913,  ch.  134. 

*  Ibid.,  1891,  ch.  51;  ibid.,  1903,  ch.  69. 

^  Ibid.,  1901,  ch.  50.  '  Cf.  above,  pp.  36,  37. 

^  Letter  from  J.  F.  Shaughnessy  to  Professor  C.  J.  Bullock,  March  11,  1915. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       62 1 

Property  Assessed  at 

Railroads 50  per  cent 

Public  utilities 20-  30 

Mining  and  milling 20-  30 

Live  stock 20 

Agricultural  and  grazing  land  (privately  owned) 20-  30 

Town  property 40-100 

It  was  decided  to  bring  all  property  to  a  60  per  cent  basis  in  the 
equalization  of  1914,  and  to  that  end  the  assessors  were  instructed 
to  make  such  increases  as  would  be  required  to  accomphsh  this 
result.  The  assessment  of  town  property  was  not  disturbed 
because  of  depleted  resources,  but  the  net  result  was  the  addition 
of  $33,717,000  to  the  tax  dupHcate  for  1914.^ 

This  drastic  action,  with  its  promise  of  more  to  follow,  aroused 
the  opposition  of  those  who  had  been  profiting  from  the  old 
regime,  and  in  191 5  the  original  tax  commission  act  was  replaced 
by  a  substitute  which  reduced  the  commission's  powers  in  certain 
important  respects."  This  act  reorganized  the  tax  commission  by 
enlarging  it  to  five  members,  three  of  whom  were  to  be  the  state 
railroad  commissioners  acting  ex  officio,  and  one  of  whom  was  to 
be  a  practical  land  and  Hve-stock  man.  The  governor  was  to  be 
ex  ofl&cio  chairman,  which  left  but  one  member  to  be  appointed. 
This  appointee,  chosen  for  a  two-year  term,  was  also  to  serve  as 
secretary  of  the  commission.  The  powers  of  corporate  assessment 
and  general  supervision  were  not  disturbed.  The  principal  change 
made  by  the  amendment  of  191 5  was  the  restoration  of  the  county 
assessors  to  power  by  requiring  them  to  sit  with  the  new  tax  com- 
mission as  the  state  board  of  equalization.  Should  this  new  board 
fail  to  make  such  corrections  in  equalization  as  would  yield  the 
necessary  state  revenue,  the  tax  commission  was  authorized  to 
insure  thie  state  against  a  deficit  by  a  further  equalization.  The 
influence  of  the  dominant  economic  class  —  the  stock  raisers  —  is 
seen  in  the  provision  that  live  stock  is  to  be  equalized  at  the 
values  estabhshed  by  the  state  board  of  equalization,  a  body 
controlled  by  the  locally  chosen  and  controlled  county  assessors. 

1  Letter  from  J.  F.  Shaughnessy  to  Professor  C-  J.  Bullock,  March  11,  1915. 
»  Laws  of  Nevada,  1915,  ch.  153. 


622  THE  STATE  TAX  COMMISSION 

The  new  commission  has  not  published  suflSciently  detailed  sta- 
tistics to  permit  of  a  close  examination  of  its  results.  The  aggre- 
gate duplicate  has  been  rising  steadily,  from  $106,000,000  in 
April,  1913  to  $175,734,000  in  191 6.  The  only  reported  class  of 
property  which  has  not  shared  in  this  increase  has  been  privately 
owned  lands  which  in  the  last  two  years  have  fallen  below  the 
assessment  of  19 14.  The  assessed  valuation  of  Hve  stock  has 
risen  from  less  than  $6,000,000  in  1913  to  $15,000,000  in  191 6, 
but  according  to  the  data  compiled,  showing  the  true  number 
and  value  of  live  stock,  a  considerable  quantity  of  the  differ- 
ent live-stock  groups  is  still  entirely  unassessed.  The  commis- 
sion estimates  that  about  10  per  cent  of  the  intangibles  are 
Usted.  In  recognition  of  the  impossibihty  of  securing  an  ade- 
quate return  of  this  property,  the  commission  has  been  recom- 
mending the  abolition  of  the  uniform  rule  and  the  classification 
of  property. 

The  principal  reforms  that  appear  now  to  be  needed  in  Nevada 
are  first,  the  elimination  of  the  constitutional  provisions  which 
limit  and  restrict  the  legislature  and  tax  administrative  bodies; 
second,  the  abandonment  of  uniform  property  taxation,  and 
third,  the  restoration  of  the  tax  commission  of  19 13  to  full 
supervisory  authority  over  the  tax  system.  The  commission  is 
advocating  all  of  these  reforms,  but  there  remains  yet  a  con- 
siderable amount  of  prejudice  and  open  opposition  from  those 
interests  whose  tax  burdens  would  be  increased  —  and  justly 
so  —  by  the  change. 

The  State  Tax  Commission  of  New  Mexico  ^ 

The  principal  functions  of  the  New  Mexico  tax  commission  are 
the  assessment  of  certain  public  utilities,  banks,  and  live  stock; 
the  investigation  of  appeals  brought  against  the  action  of  the 
county  boards  of  equahzation  and  the  correction  of  improper 
assessments  when  discovered  through  such  investigations;  and 
rather  feeble  advisory  supervision  over  the  local  oflScials.  On 
account  of  the  narrow  range  of  authority  and  the  limited  appro- 
priations the  New  Mexico  tax  commission  has  been  able  to  make 
*  Established  by  Laws  of  New  Mexico,  1915,  ch.  54. 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       623 

but  little  headway  thus  far  in  correcting  the  abuses  which  had 
developed  in  the  tax  system.*  The  whole  conception  of  the  pur- 
poses and  scope  of  the  modern  tax  commission  needs  material 
broadening,  in  New  Mexico,  if  these  defects  are  to  be  dealt  with 
at  all  satisfactorily. 

1  Cf.  New  Mexico  Tax  Commission,  Report,  19 16,  pp.  10  ff. 


624 


THE  STATE  TAX  COMMISSION 


APPENDIX  A,   CHAPTER  XVIII 

(a)  The  Assessment  of  Corporations  in  Colorado,  191 2-16 
(thousands  of  dollars) 


Corporation 

Railroads 

Telephones 

Telegraph 

Express 

Sleeping  car 

Foreign  car  lines 

Self-winding  clock  company 

Local  public  utilities 

Totals 


1914 


191S 


1916 


54,639 
3,791 
940 
586 
456 
486 

13 


174,774 
10,842 

1,507 

1,572 

1,108 

852 

39 

59,540 


179,461 

10,842 

1,496 

1,420 

1,101 

762 

39 
66,898 


173,499 

io,5S9 

1,478 

1,353 

1,101 

676 

26 

64,993 


60,912 


260,242 


262,019 


253,686 


168,911 

12,742 

1,608 

1,462 

1,101 

632 

25 

55,969 


242,451 


TAX  COMMISSIONS  IN  THE  WESTERN  STATES       625 


APPENDIX  A  — continued 


(b)   The  Assessment  of  Personal  Property  in  Colorado,  191 2-16 
(millions  of  dollars) 


igi2 

1913 

1Q14 

IQIS 

1916 

/.  Tangibles 

Live  stock 

18.0 
3-6 

2.7 

16.7 

3-5 
12. 1 

3-9 

52.7 
7.0 

4.2 

3-1 

39-0 

10.8 

18.0 

5-8 

61.4 
8.5 

4.6 
6.6 

39-3 
8.2 

18.9 
S-9 

72.7 

lo.S 

4-7 

7-4 

40.7 

12.0 

19.2 

5-9 

81. s 

Vehicles 

13-9 
5.1 

Musical  instruments, 
clocks,  etc 

Implements,  machinery  .  . 
Merchandise    

7.6 
41.7 

Manufacturers'  stocks. .  .  . 
Household  and  personal.  . 
Furniture,  fixtures 

19.4 

20.4 

5.6 

Totals 

60.5 
•7 

3-2 

.2 

7.8 

.1 

140.6 

2.0 

17.7 

.6 

23.1 

1534 

12.6 

iS-i 

4.9 

22.8 

•3 

I73-I 

II. 2 

15-6 

5-0 

21.7 

•9 

195.2 

//.  Intangibles 

Bank  deposits 

13.7 

Unsecured  credits 

Secured  credits 

16.3 
5.2 

Bank  shares 

20.9 

Corporation  stocks 

.1 

Totals 

12.0 
4.9 

43-4 
31 

55-7 
3-4 

54-4 

2-3 

56.2 

///.  All  Other  Property  .... 

2.6 

Grand  totals 

77-4 
16.4 

187. 1 
31-8 

212.5 
45-9 

229.8 
43-5 

245.0 

Deduct  exemptions 

47-7 

Total  taxable 

61.0 

iSS-3 

166.6 

186.3 

206.3 

Note:  The  published  figures  for  1912  show  an  item  of  special  privileges,  franchises,  etc.,  with  a 
total  assessment  of  $11,900,000.  The  highest  figure  for  this  item  since  1901  had  been  $959,000  in  1903. 
The  sudden  increase  was  made  in  Denver  county,  and  apparently  represents  the  local  assessment  of 
the  public  utilities,  though  no  return  had  been  made  under  this  item  from  Denver  county  since  1908. 
The  amount  reported  under  this  head  drops  to  a  negligible  figure  after  191 2,  and  is  omitted  from  the 
table.  The  assessment  of  public  utilities  by  the  tax  commission  is  shown  in  table  (a)  above.  Cf. 
Colorado  Tax  Commission,  Report,  191 2,  p.  23. 


626 


THE  STATE  TAX  COMMISSION 


APPENDIX  B,  CHAPTER  X\ail 

The  Assessment  of  Personal  Property  in  South  Dakota,  1913-16* 
(millions  Of  dollars) 


Classification 

1913 

1914 

191S 

1916 

/.  Tangibles 
Live  stock 

87.9 
7.6 
2.8 

5-7 

lO.I 

23-8 

6.7 
3-3 

5-5 
2.7 

II.Q 

•3 
.6 

86.8 

10.7 

2.9 

4-5 

7-9 

22.8 

S-3 
4.1 

4-4 

3-9 

12.3 

.1 

•7 

95-7 
12.3 

3-0 

4-7 

8.1 

22.5 

S-i 
4-5 

4.2 

3-8 

12.6 

.2 

•7 

104.8 

Vehicles 

15-4 

Musical  instruments 

3.1 

Household  and  personal 

Tools,  implements,  machinery  . 
Goods,  wares,  merchandise  .... 
Elevators,  warehouses,  and  im- 
provements on  public  lands . . 
Other  tangibles    

4.8 

8.5 
2.27 

S-o 
3.9 

II.  Intangibles 

Moneys 

3.9 

Credits 

3-9 

Bank  stock  

13.4 

Other  bonds  and  stocks 

.   Stocks  of  domestic  insurance 
companies       

.1 

.7 

Total  intangibles 

21. 1 
I.I 

21.4 
2.7 

21-5 

2.8 

22.0 

Street  Railways,  etc 

2.9 

Grand  totals 

170.2 

169. 1 

180.2 

191. 6 

1  Compiled  from  the  reports  of  the  commission. 


CHAPTER  XIX 


CONCLUSION 


No  attempt  will  be  made  in  this  final  chapter  to  summarize  in 
detail  the  material  covered  in  the  preceding  chapters,  nor  will  it 
be  possible  to  review  the  conclusions  reached  upon  every  point 
raised.  The  principal  conclusions  which  may  be  drawn  from  a 
study  of  the  recent  administrative  tendencies  in  American  taxa- 
tion will,  however,  be  given. 

With  regard  to  the  organization  of  the  tax  departments,  it 
seems  clear  that  the  most  satisfactory  results  will  be  obtained  by 
establishing  a  fairly  long  term,  providing  stability  of  tenure, 
salaries  large  enough  to  attract  able  men,  and  securing  the  tax 
commissioners  against  the  distracting  influences  of  partizan 
politics,  both  in  their  appointment  and  in  the  fulfillment  of  their 
duties  of  office.  Circumstances  may  require  variation  in  the  size 
of  the  board,  but  it  appears  probable  that  the  best  results  will 
generally  be  secured  from  a  commission  of  three  members  as 
against  the  single  commissioner  or  the  board  of  five  or  more  mem- 
bers. In  any  case,  the  experience  with  ex  officio  members  yields 
a  perfectly  clear  conclusion  —  no  commission  should  be  hampered 
with  members  so  chosen.  Further,  it  is  equally  clear  that  the  state 
loses  by  burdening  its  tax  department  with  miscellaneous  minor 
duties  which  are  in  no  way  connected  with  the  subject  of  fiscal 
administration,  or  at  most  but  remotely  related  to  that  problem. 
The  North  CaroHna  corporation  commission  is  evidently  ex- 
pected to  give  its  spare  time  to  tax  administration.  In  Massa- 
chusetts and  West  Virginia  the  tax  commissioner  is  required  to 
act  as  commissioner  of  corporations,  and  in  Washington  the  com- 
mission acts  as  an  excise  board,  supervising  the  issue  of  Uquor 
licenses  for  the  state.  The  system  of  license  taxes  in  West  Virginia 
involves  duties  the  burden  of  which  is  quite  in  excess  of  the 
financial  return  to  the  state,  since  the  problem  is  so  largely  regula- 

637 


628  THE  STATE  TAX  COMMISSION 

tive  in  character.  This  tendency  is  unfortunate  for  the  develop- 
ment of  the  most  efficient  administration  of  the  central  problem 
of  equitable  taxation. 

Turning  to  the  positive  accomplishments  of  the  state  tax 
departments,  the  first  point  to  be  noted  is  the  gain  that  has  been 
made  in  the  assessment  and  equalization  of  real  estate,  over  the 
conditions  which  had  been  universal  before  the  advent  of  the  tax 
commission.  The  primary  cause  of  this  improvement  was  the 
novelty  of  the  new  boards  and  of  central  supervision  in  any  degree. 
The  local  assessors  were  awed  by  the  mere  existence  of  supervising 
boards,  the  scope  and  significance  of  whose  authority  was  but 
vaguely  understood.  The  first  results  in  Indiana,  Wisconsin,  and 
Michigan  are  to  be  attributed  in  no  small  degree  to  this  fact.  As 
the  novelty  wore  off,  however,  closer  supervision  over  the  local 
officials  was  found  to  be  necessary,  and  where  the  authority 
requisite  for  this  oversight  did  not  exist  the  local  standards 
gradually  declined. 

But  the  improvement  in  state  equalization  has  not  sufficed. 
The  assessment  of  real  estate  is  still  a  local  affair,  and  even  with 
a  more  effective  state  organization  a  sufficient  incentive  to  com- 
petitive undervaluation  has  been  found  in  the  possibility  of 
evading  county  and  other  local  taxes  apportioned  over  more  than 
one  tax  district.  Moreover,  investigations  in  many  states  have 
shown  that  serious  inequaHties  exist  between  individuals  and 
classes  of  property  in  the  same  district.  For  these  conditions  the 
only  remedy  seems  to  be  greater  control  over  the  original  assess- 
ment and  the  development  of  a  check  upon  the  local  assessors 
sufficiently  powerful  to  detect  and  eliminate  all  attempts  to  derive 
advantage  from  competitive  undervaluation  or  from  downright 
evasion.  Various  writers  have  pointed  out  that  the  separation  of 
sources  of  revenue  means  the  withdrawal  of  state  oversight  of  the 
local  assessment  and  equalization,  and  that  the  truth  seems  to  be 
that  more  oversight,  and  not  less,  is  needed.  While  it  may  be 
argued  that  a  good  assessment  is  the  best  equalizat^n,  and  of  this 
there  is  no  denial,  yet  it  must  be  said  that  the  state  cannot  shift  or 
evade  its  responsibility  for  the  oversight  necessary  to  prevent 
injustice  and  inequality  in  local  assessments.   Prevention  may  be 


CONCLUSION  629 

better  than  cure,  but  the  emphasis  upon  preventive  ideals  must 
not  obscure  our  view  of  the  practical  curative  agencies  which  may 
be  necessary  in  the  meantime.  The  functions  of  equalization  and 
supervision  are  in  a  sense  complementary. 

A  further  gain  made  by  the  state  tax  commissions  has  been  the 
development  of  improved  technique  in  tax  administration, 
especially  in  testing  the  local  assessments  and  the  assessment  of 
corporate  property.  For  obvious  reasons  none  of  the  state  boards, 
of  the  type  common  before  the  advent  of  the  tax  commission, 
could  have  made  this  development.  Probably  the  most  efficient 
method  for  correcting  the  errors  in  local  real  estate  assessments, 
whether  due  to  conscious  attempt  at  undervaluation  or  to  sheer 
ignorance  of  values,  is  the  sales  method  of  equalization.  This  plan 
appeared  in  various  states,  in  New  York,  in  Connecticut,  and  per- 
haps elsewhere.  For  its  development  into  a  highly  efficient  tech- 
nical device,  most  credit  is  due  the  Wisconsin  tax  commission. 
Some  form  of  the  system  is  now  in  use  in  a  number  of  states,  but 
personal  observation  of  the  methods  followed  in  the  compilation 
of  the  sales  ratios  casts  some  doubt  upon  their  entire  accuracy, 
especially  when  used  for  the  purpose  of  equalizing  assessments  of 
corporate  property  in  different  tax  districts.  Whether  the  sales 
ratios  are  accurate  or  not,  their  mere  use  in  equahzation  will  tend 
to  check  competitive  undervaluation  by  negativing  its  results, 
since  any  uncalculable  change  in  the  local  figures  by  a  state  board 
would  operate  in  this  way.  But  unless  the  ratios  be  thoroughly 
rehable  there  is  no  assurance  that  the  state  board's  results  guaran- 
tee justice  among  tax  districts  or  classes  of  property.  In  some 
states  a  careful  revision  of  the  sales  material  and  of  the  present 
methods  of  preparing  the  ratios  seems  necessary. 

It  should  further  be  added,  as  an  explanation  of  the  greater 
relative  success  in  the  assessment  of  real  estate,  that  land  is  of  all 
property  the  most  difficult  to  keep  off  the  tax  duplicate.  The 
only  guarantee  against  some  evasion  of  real  estate,  however,  is  the 
use  of  tax  maps  upon  which  every  parcel  of  land  is  shown  and 
properly  described.  And  since  a  proper  assessment  is  furthered 
by  a  certain  analytical  treatment  of  the  property  to  be  assessed, 
classification  of  real  estate  and  separate  returns  of  land  and 


630  THE  STATE  TAX  COMMISSION 

improvements  are  very  essential.  As  yet  these  requisites  of 
proper  assessment  are  used  in  but  few  states  though  many  com- 
missions have  begun  to  urge  their  introduction.  In  general  the 
experience  of  the  last  decade  in  the  assessment  of  real  estate  shows 
that  still  greater  control  over  the  assessment  is  necessary  in  order 
to  attain  the  legal  standard  of  full  cash  value. 

The  achievements  of  the  new  tax  departments  have  been 
remarkable,  also,  in  the  assessment  of  corporate  property,  as  com- 
pared with  the  results  under  the  former  state  boards.  Here  the 
gains  have  not  been  due  so  much  to  the  novelty  of  the  change  — 
for  central  assessment  of  corporations  had  been  practiced  for 
many  years  before  1891 —  but  rather  in  the  performance  of  this 
function  by  more  or  less  expert  bodies  giving  their  whole  time  and 
attention  to  the  subject  and  using  much  more  careful  methods  of 
procedure  than  had  ever  been  known  before.  In  these  respects 
there  was  an  element  of  novelty  which  was  not  without  its  effect. 
The  chief  improvement  in  methods  developed  by  the  state  tax 
^  commission  for  the  assessment  of  corporations  has  been  the  phys- 
ical  valuation.  Originally  used  for  taxation  purposes  by  the  New 
Jersey  board  of  state  assessors  in  the  eighties,  this  method  of 
arriving  at  an  independent  determination  of  value  has  spread  to 
a  number  of  states,  though  the  emphasis  upon  it  is  still  far  from 
uniform  and  a  temporary  reaction  appeared  a  few  years  ago  in 
Michigan,  the  state  which  did  most  to  popularize  it.  Nowhere, 
however,  is  the  physical  valuation  taken  as  the  taxable  valuation 
without  some  modification.  The  earlier  policy  was  to  hold  in 
strictest  secrecy  the  essential  methods  of  modifying  the  engineer's 
figures,  but  very  complete  descriptions  have  now  been  furnished 
to  the  courts  and  the  public  by  the  Wisconsin  and  other  commis- 
sions. This  willingness  to  publish  the  details  of  the  system  of 
valuation  indicates  the  growth  of  scientific  methods  and  of  con- 
fidence in  those  methods.  The  principal  reason,  probably,  for  the 
secrecy  of  tax  boards  in  earUer  years  was  the  realization  that  their 
procedure  could  and  would  be  unfairly  attacked.  That  is  to  say, 
the  corporations  were  very  eager  to  pick  flaws  and  would  have 
desired  nothing  better  than  to  tie  up  the  assessments  in  long  legal 
proceedings.  While  the  commissions'  methods  were  tentative  and 


CONCLUSION  63 1 

their  confidence  in  the  results  was  less  complete,  the  policy  of 
secrecy  offered  obvious  strategic  advantages.  The  corporations 
have  now  come  to  accept  the  central  assessment  rather  willingly 
as  the  tax  commissions  have  acquired  greater  skill  and  experience. 
This  change  is  bringing  full  publicity  that  removes  one  of  the 
weightiest  objections  which  has  been  raised  against  the  ad 
valorem  system  of  corporate  taxation,  the  private  office  valuation, 
with  no  opportunity  for  the  corporation  or  the  pubUc  to  know  the 
details  of  the  process. 

Comparing  the  results  of  ad  valorem  and  gross  earnings  taxa- 
tion, the  honors  seem  fairly  evenly  divided,  the  former  system 
being  more  flexible  and  the  latter  more  simple.  Since  flexibiHty  is 
so  desirable  in  a  revenue  system,  however,  the  balance  of  advan- 
tage appears  to  He  with  the  ad  valorem  system  in  those  states  in 
which  the  board  is  capable  of  developing  a  careful  and  scientific 
method  of  apphcation.  This  involves  an  accurate  physical  inven- 
tory and  in  addition  a  thorough  study  of  the  conditions  of  the 
business  from  many  points  of  view  by  a  board  the  members  of 
which  are  properly  trained  for  the  task.  Where  no  intensive 
study  of  the  problem  is  possible,  either  by  reason  of  the  board's 
personnel  or  a  parsimonious  financial  poHcy  toward  the  tax 
department,  the  simpler  system  would  probably  prove  more  satis- 
factory. This  is  especially  true  in  those  states  in  which  the  gross 
earnings  have  been  used  as  the  principal  factor  in  determining 
valuation.  Here  it  seems  that  the  gross  earnings  system  should  be 
adopted  outright.  It  is  simpler,  it  is  already  the  system  de  facto, 
and  it  is  certainly  more  effective  and  accurate  when  apphed 
directly  than  in  such  roundabout  fashion,  while  the  use  of  the 
more  complex  ad  valorem  method  by  unskillful  or  incompetent 
persons  involves  a  considerable  risk  of  unfair  assessments. 

In  the  case  of  certain  transmission  and  transportation  com- 
panies, however,  the  tangible  plant  of  which  is  a  relatively  less 
important  factor  in  their  earning  capacity,  the  propriety  of  the 
ad  valorem  system  of  taxation  is  more  doubtful.  The  cost  of 
assessment  is  relatively  heavy  and  the  receipts  arc  comparatively 
small.  This  method  here  violates  the  fundamental  principle  of 
economy  in  tax  administration,  a  principle  which  is  further 


632  THE  STATE  TAX  COMMISSION 

violated  by  the  distribution  of  the  receipts  over  hundreds  of  tax 
districts.  The  state  treasury  is  certainly  the  more  logical  recipient 
of  these  taxes  and  the  gross  earnings  system  the  more  economical 
method  of  determining  them,  since  the  possible  losses  through 
inflexibihty  are  offset  by  the  greater  expense  of  the  ad  valorem 
method.  In  addition,  the  tax  commission  would  gain  time  for 
more  important  work  by  using  the  gross  earnings  method  for  such 
companies. 

The  general  tendency  toward  judicial  review  of  the  work  of 
administrative  bodies  has  manifested  itself  in  a  peculiarly  unfor- 
tunate way  in  the  assessment  of  corporations.  It  is  highly  illogical 
for  the  findings  of  fact  of  an  expert  administrative  body  to  be  sub- 
ject to  review  by  a  court,  whose  capacity  for  thorough  review  of 
such  findings  is  often  inadequate.  The  interests  of  the  corporate 
and  other  taxpayers  should  be  properly  safeguarded  by  providing 
a  review  before  the  assessing  board  itself,  with  the  right  to  protect 
every  legal  interest  by  an  appeal  to  the  courts.  But  the  review  of 
questions  of  fact  by  the  courts  is  anomalous,  and  very  largely 
destroys  the  object  of  the  board's  existence  for  purposes  of 
corporate  assessment. 

On  the  whole,  however,  the  results  of  centralized  administration 
in  the  taxation  of  real  estate  and  corporate  property  have  been 
favorable.  Valuations  have  been  increased,  better  methods  of 
assessment  have  been  developed,  and  some  improvements  effected 
in  the  equalization  of  tax  burdens.  These  accompHshments  are  the 
bright  side  of  the  shield,  the  reverse  of  which  is  presented  when 
attention  is  turned  to  the  assessment  of  personal  property  under 
the  uniform  rule.  The  aggregate  assessment  of  personal  property 
has  been  increased,  it  is  true,  except  in  New  York  state  where  the 
swearing-off  process  has  flourished  luxuriantly ;  but  an  analysis  of 
the  personal  property  returns  in  those  states  in  which  the  data 
permit  such  a  study  reveals  the  fact  that  the  increase  has  been 
largely  in  the  groups  of  tangible  property.  Furthermore,  there  has 
been  in  some  cases  a  distinct  tendency  to  penalize  the  relatively 
unproductive  forms  of  property,  such  as  household  furniture  and 
personal  belongings.  Live  stock  has  also  contributed  heavily  to 
these  increases.    On  the  other  hand,  the  figures  for  intangible 


CONCLUSION  633 

personal  property  reveal  most  clearly  the  failure  of  the  uniform 
rule,  even  under  centralized  administration.  The  total  assessment 
of  intangibles  has  usually  stood  still,  or  has  increased  but  slowly, 
while  many  of  the  individual  items  have  declined.  The  occasional 
exceptions,  such  as  the  assessment  of  mortgages  in  Kansas  and  the 
gains  made  in  Ohio  since  1910,  are  not  sufficient  demonstration  of 
the  adequacy  of  the  uniform  rule  in  view  of  the  otherwise  uni- 
versal failure.  It  may  be  said  that  the  powers  of  the  tax  commis- 
sions are  not  sufficiently  inquisitorial  at  present  to  secure  more 
general  or  complete  listing  of  intangible  property.  The  Ohio  com- 
mission has  contended  that  with  more  drastic  control  over  the 
assessment  a  complete  return  of  all  property  is  possible.  The  two 
assessments  made  in  Ohio  under  such  conditions  were  of  course 
inconclusive,  but  it  is  hardly  conceivable  that  public  opinion  would 
long  tolerate  the  degree  of  inquisition  into  private  affairs  needed  '' 
to  secure  this  end.  The  essential  injustice  of  such  taxation 
strengthens  this  view.  A  tax  rate  of  i  per  cent,  which  is  regarded 
by  the  conservatives  as  all  that  moderation  could  desire,  amounts 
to  an  income  tax  of  20-25  per  cent  upon  the  return  from  many 
classes  of  investments.  The  experience  with  the  income  tax  in 
Wisconsin  has  convinced  that  commission  that  the  average  tax- 
payer would  rather  be  honest  than  not,  unless  confiscation  is  to  be 
the  result,  but  under  the  general  property  tax  there  is  no  assur- 
ance or  safeguard  against  this  outcome.  The  auditor  of  Cuyahoga 
county,  Ohio,  declared  a  few  years  ago  that  the  existing  tax  rate 
of  $1.55  per  $100  could  not  be  lowered,  even  with  a  resulting 
increase  of  the  duplicate,  without  both  city  and  county  incurring 
grave  danger  of  bankruptcy.'  Prospects  of  this  sort  did  not 
popularize  the  central  assessment  of  all  property  in  Ohio  in  1914. 
Many  of  the  tax  commissions  recognize  the  failure  at  this  point, 
and  some  have  already  begun  to  consider  possible  substitutes  for  ■:=- 
the  uniform  personal  property  tax,  though  this  rule  has  been 
actually  abandoned  in  but  few  states.  The  two  most  prominent 
substitutes  that  have  been  proposed  are  a  state  income  tax  and 
some  form  of  classification  of  property.   The  experience  thus  far 

^  Cleveland  Plain  Dealer,  March  20,  1914.    There  has  been  no  subsequent  re- 
duction in  the  tax  rate  of  Cleveland. 


634  THE  STATE  TAX  COMMISSION 

with  both  of  these  proposed  substitutes  leads  to  the  conclusion 
that  success  depends  upon  efficient  state  control.  This  is  the 
judgment  of  the  Wisconsin  commission  with  regard  to  the  income 
tax,  and  the  experience  of  the  Minnesota  commission  is  equally 
clear  concerning  the  administration  of  a  classified  personal  prop- 
erty tax.  Neither  the  separation  of  the  sources  of  state  and  local 
revenue  nor  the  perfection  of  the  methods  of  equahzation  can 
wholly  free  the  state  from  its  responsibihty  for  the  supervision  of 
local  assessments.  The  striking  success  of  the  more  recent  Massa- 
chusetts income  tax  indicates  the  possibiHties  of  a  combined 
income  and  property  tax. 

The  scope  and  Hmits  of  this  supervision  are,  however,  more 
debatable  propositions.  Whether  the  Wisconsin  plan  of  close 
stat£_supe]rvision  and  thorough  review  of  local  assessment,  sup- 
plemented by  wide  distribution  of  data  of  values,  or  the  recent 
Ohio  experiment  of  complete  state  performance  of  the  local 
assessment  will  prove  the  superior,  time  alone  will  tell.  Both  of 
these  plans  suffered  from  the  disadvantage  of  employing  the 
actual  assessors  for  a  part  of  the  year  only.  This  inevitably  meant 
that  inferior  men  were  frequently  chosen,  men  without  steady 
employment,  the  less  capable  men  of  the  community.  Few  per- 
sons in  either  state  could  afford  to  be  a  candidate  for  the  relatively 
unremunerative  oJS&ce  of  town  assessor,  if  their  time  were  worth 
much  more  in  some  other  employment.  The  plan  suggested  by 
the  Kansas  commission  obviates  this  difficulty.  Under  it  the 
county  assessor  would  be  required  to  view  and  assess  all  of  the 
property  of  his  county,  taking  at  least  a  year  to  the  work.  If 
deputies  were  needed,  only  such  number  should  be  employed  as 
could  be  given  steady  employment  in  the  work  of  assessment 
throughout  the  year.  This  plan  would  require  an  adjustment  of 
the  assessment  periods  so  that  these  permanently  employed  per- 
sons could  perform  the  entire  work.  Some  of  the  states  in  which 
centralized  administration  has  been  in  vogue  for  years  need  to 
recast  their  assessment  schedule  in  order  to  allow  more  time  for 
certain  phases  of  the  work. 

The  Wisconsin  commission's  judgment  on  the  desirability  of 
complete  state  control  of  all  local  assessments  appears  to  be 


CONCLUSION  63  5 

shifting  as  the  good  results  of  the  closer  cooperation  of  state  and 
local  officials  become  more  apparent.  These  results  have  been 
obtained  by  substituting  the  centrally  controlled  income  tax 
assessor  for  the  locally  controlled  county  supervisor  of  assess- 
ments, by  making  greater  efforts  to  instruct  the  local  officials  and 
to  provide  them  with  data  on  values,  and  by  equipping  the  tax 
commission  with  ample  powers  of  review  and  correction  of  the 
local  results. 

Whether  the  assessors  be  elected  locally  or  appointed  centrally, 
three  conditions  must  be  met  if  assessments  are  to  be  materially 
improved.  Th^firsOof  these  is  the  estabUshment  of  an  inter- 
mediate official  between  the  tax  commission  and  the  local  assessor. 
Many  states  have  already  created  the  office  of  county  assessor,  but 
his  allegiance  has  generally  been  local  rather  than  central.  The 
county  assessor  should  be  centrally  chosen,  or  at  least  removable 
by  the  state  tax  commission. 

In  the  second  place  the  tax  commission  should  develop  more 
adequate  facilities  for  collecting  and  distributing  data  of  values, 
especially  sales  data,  and  should  be  empowered  to  compel  the  use 
of  these  materials  by  the  local  assessors.  This  would  require  a 
revision  of  the  systems  now  in  use  in  some  states  for  the  collection 
and  use  of  such  material.  Finally,  there  must  be  courageous  and 
impartial  exercise  of  adequate  powers  of  revision  of  assessments, 
and  the  removal,  if  necessary,  of  the  local  officials. 

This  administrative  organization  would  probably  be  satisfac- 
tory for  the  assessment  of  real  estate,  classified  personal  property, 
and  personal  incomes,  and  possibly  of  local  public  utiHties.  It  is 
doubtful  if  it  would  prove  entirely  satisfactory  for  the  taxation  of 
the  larger  corporations,  both  public  and  private,  a  task  which  can 
hardly  be  adequately  performed  except  by  the  state  tax  commis- 
sion itself.  Thus  far,  only  the  pubhc  service  corporations  have 
been  centrally  assessed,  but  the  question  may  well  be  asked 
whether  the  local  assessor  is  any  better  able  to  value  the  plant  of  a 
large  manufacturing  company  than  he  is  to  value  the  property  of 
a  railroad  company.  The  suggestions  of  the  Michigan  Commis- 
sion of  Inquiry  of  191 1  on  this  point  have  apparently  met  with 
little  response.  There  is  certainly  great  need  of  reform  here,  how- 


636  THE  STATE  TAX  COMMISSION 

ever,  for  the  efforts  of  the  local  assessors  are  wholly  inadequate 
and  but  few  states  make  any  attempt  to  supplement  the  local 
valuation  of  tangible  property  with  a  state  valuation  of  the  cor- 
porate excess  or  other  compensatory  taxes  on  private  corporations. 
Reform  of  the  methods  of  taxing  private  corporations  must 
speedily  engage  the  attention  of  tax  commissions  and  legislatures. 

Among  the  most  significant  of  the  achievements  of  the  state  tax 
commissions  has  been  the  introduction  of  systems  of  uniform 
accounting  and  auditing  for  pubHc  ofl&ces  and  more  careful  atten- 
tion to  budgetary  questiotis.  The  development  of  a  scientific  and 
standardized  system  of  pubHc  accounting  Hes  at  the  very  basis  of 
any  accurate  study  of  public  expenditures,  and  thus  is  an  essential 
of  budget  reform.  There  is  no  evidence  as  yet  of  the  control  of 
budget  estimates  by  the  tax  commissions,  except  in  Ohio  where 
the  commission  may  veto  the  tax  levies  fixed  by  the  county  bud- 
get commissions.  It  is  indeed  doubtful  if  their  functions  should  be 
extended  so  far,  but  their  control  of  public  accounting  will  make 
possible  a  much  more  dependable  calculation  of  expenditures  by 
the  proper  ofl&cials,  and  the  introduction  of  precision  at  this  point 
will  stimulate  greater  accuracy  in  actual  budget  making.  There 
is  no  doubt,  also,  that  this  greater  precision  in  public  accounts  will 
contribute  to  economy  of  pubHc  expenditures  by  directing  more 
general  attention  to  the  subject  and  providing  more  accurate 
information  thereon.  Economy  in  pubKc  expenditures  will  also  be 
achieved  by  saving  the  state  the  considerable  sums  that  are  now 
improperly  diverted  from  the  public  treasury,  a  species  of  em- 
bezzlement which  is  made  possible  by  the  loose  systems  of 
accounting  in  vogue.  The  tax  commissioner  of  West  Virginia  has 
recovered  thousands  of  dollars  since  state  control  of  public 
accounting  was  instituted. 

The  possibiHties  of  molding  and  developing  public  opinion 
through  the  reports  issued  and  recommendations  advanced  have 
only  begun  to  be  realized.  Some  commissions  endeavor  to  make 
their  periodical  reports  genuinely  valuable  documents,  the  perusal 
of  which  over  the  state  is  of  the  highest  value  as  an  educational 
influence.  Others  have  apparently  striven  for  the  elimination  of 
all  analysis  and  discussion  of  their  problems  and  for  the  pubHca- 


CONCLUSION  637 

tion  of  as  barren  and  uninviting  documents  as  possible.  One  is  led 
to  conjecture  that  the  publication  of  such  a  report  is  an  indication 
that  very  little  analysis  of  the  problem  has  been  going  on  and  that 
the  commissioners  have  no  vital  message  for  the  people.  Whether 
this  condition  is  a  result  of  dry  rot  or  overwork,  it  is  equally 
serious  for  efficient  administration. 

The  course  of  development  of  the  present  systems  of  fiscal 
administration  which  has  been  outlined  in  this  work  reveals  a 
steady  progression  toward  greater  state  control.  Beginning  with 
virtually  complete  freedom  of  local  assessment,  there  has  been 
developed  a  steadily  stronger  and  stronger  control  over  the  proc- 
ess of  local  listing  and  valuation  of  property,  until  eventually  the 
state  has  assumed  in  several  instances  large  powers  of  control. 
The  Ohio  experiment  of  complete  state  administration  of  the 
assessment  marked,  in  this  respect,  a  new  departure  in  tax 
administration,  the  consequences  of  which  really  extend  far 
beyond  the  present  subject.  The  tendency  which  has  been  de- 
scribed in  this  work  is  that  of  greater  state  control  of  local  admin- 
istrative processes  with  state  assumption  of  those  processes,  like 
corporate  assessment,  which  had  clearly  ceased  to  be  local  func- 
tions. This  supervision  by  the  state  has  been  referred  to  above 
either  as  state  control  or  as  state  administration  of  the  local 
officials.  On  the  other  hand  the  Ohio  plan  meant  that  state 
administration,  in  the  sense  of  responsibility  for  performance,  had 
actually  been  substituted  for  local  administration,  and  that  the 
latter  had  ceased  to  exist.  The  general  conclusion  which  has  been  \ 
reached  from  this  study  has  been  that  state  control  of  local  admin-  ' 
istration  has  been  beneficial,  and  should  be  extended  in  some 
directions  even  further  than  at  present,  in  order  to  permit  the 
correction  of  certain  defects  still  existing.  Complete  state  assump- 
tion of  the  functions  of  local  administration  is,  however,  quite 
another  matter  and  it  is  doubtful  if  this  extension  of  state  activi- 
ties can  be  justified.  For  the  sake  of  local  self-government,  and 
even  of  democracy  itself,  can  the  state  afford  to  deprive  the  local 
units  of  all  responsibility  in  a  field  so  important  for  the  whole 
people  as  that  of  taxation  ?  The  problem  is  a  serious  one.  It 
involves  the  loss  of  much  that  is  vital  in  local  government  and  the 


638  THE  STATE  TAX  COMMISSION 

extension  at  the  same  time  of  state  activity  in  the  interests  of 
general  welfare.  The  present  movement  toward  central  control, 
or  central  administration  in  that  sense,  cannot  stop  where  it  is. 
Certain  means  of  a  more  efficient  state  oversight  have  been  pro- 
vided and  are  being  exercised.  The  financial  system  which  en- 
couraged local  negHgence  and  cunning,  while  it  penaHzed  honesty 
and  administrative  efficiency,  is  being  slowly  but  surely  aban- 
doned. A  most  difficult  but  not  impossible  part  of  the  task  Hes 
yet  ahead,  the  development  of  a  sense  of  local  responsibihty 
which  can  be  trusted  with  the  proper  performance  of  certain 
functions,  such  as  the  assessment  of  real  estate,  the  establishment 
of  local  tax  levies,  and  the  local  equalization  of  assessments,  which 
are  after  all  local  rather  than  central  in  character.  There  has  been 
a  beginning  of  this  development  in  such  states  as  Wisconsin, 
^  Kansas,  Massachusetts,  and  Connecticut,  though  even  in  these 
states  the  task  of  awakening  the  spirit  of  local  responsibihty  has 
been  a  heavy  one.  The  tax  commissions  must  realize,  and  bring 
the  people  in  general  to  realize,  the  dangers  which  lurk  in  exces- 
sive bureaucratic  centraHzation  of  the  responsibilities  of  democ- 
racy. Not  until  this  has  been  achieved  can  it  be  said  that  their 
mission  is  fully  accomplished. 


BIBLIOGRAPHY 


BIBLIOGRAPHY 

The  following  bibliography  includes  the  more  important  works 
which  have  been  used  in  the  preparation  of  the  above  chapters.  It 
does  not  include,  however,  the  various  state  statutes  or  the  editions 
of  the  revenue  laws  which  have  been  issued  by  most  tax  commissions, 
though  these  have  been  freely  used. 

For  brevity  and  the  avoidance  of  repetitions  certain  abbreviations 
have  been  used  in  indicating  the  publishing  agent.  For  example,  the 
"  Columbia  University  Studies  in  History,  Economics  and  Public 
Law  "  have  been  referred  to  as  the  "  Columbia  Studies  ";  similarly, 
the  "  Johns  Hopkins  University  Studies  in  the  Social  Sciences  "  have 
been  referred  to  as  the  "  Johns  Hopkins  University  Studies,"  and  the 
"Addresses  and  Proceedings  of  the  National  Tax  Conference  held 
under  the  Auspices  of  the  National  Tax  Association"  have  been 
shortened  to  "  Proceedings  of  the  National  Tax  Conference  "  of  the 
appropriate  year. 

For  similar  reasons  an  abbreviated  title  has  been  used  in  the  citation 
of  certain  works  or  documents,  instead  of  the  complete  title.  In  such 
cases  the  abbreviated  title  appears  here  in  parenthesis. 

The  material  has  been  arranged  in  four  main  groups.  The  first  in- 
cludes general  works  on  taxation  and  other  aspects  of  public  finance, 
or  special  parts  of  the  field;  the  second  includes  special  articles  and 
addresses  and  some  public  documents,  as  the  publications  of  the  Census 
Bureau;  the  third  includes  the  reports  of  the  special  and  permanent 
tax  commissions  in  the  various  states;  and  the  fourth  contains  some 
references  of  a  miscellaneous  character. 

I.   GENERAL  WORKS 

Adams,  T.  S.    "  Taxation  in  Maryland,  Studies  in  State  Taxation,"  in  Johns 

Hopkins  University  Studies,  xviii,  no.  i.    1900. 
Agger,  E.  E.    "  The  Budget  in  the  American  Commonwealths,"  in  Columbia 

Sttidies,  XXV,  no.  2.     1907. 
Benton,  E.  J.    "  Taxation  in  Kansas,"  in  Johis  Hopkins  University  Studies, 

xviii,  no.  3.     1900. 
Black,  C.  C.    The  Law  of  Taxation,  with  special  Reference  to  its  Application 

in  the  State  of  New  Jersey.    Newark,  1906. 

641 


642  BIBLIOGRAPHY 

BoGAKT,  E.  L.    "  Financial  History  of  Ohio,"  in  University  of  Illinois  Studies, 

i,  nos.  I,  2.     1912. 
Boyle,  J.  E.    "  Financial  History  of  Kansas,"  in  Bulletin  of  the  University 

of  Wisconsin,  no.  247.    1908. 
Brindley,  J.  H.    History  of  Taxation  in  Iowa.    Iowa  Historical  Society. 

2  vols.     Iowa  City,  1911. 
Brough,  C.  H.    "  Taxation  in  Mississippi,"  in  Johns  Hopkins  University 

Studies,  xviii,  no.  4.     1900. 
Bullock,  C.  J.  (editor).    Selected  Readings  in  Public  Finance.    Boston,  1906. 

"  Historical  Sketch  of  the  Finances  and  Financial  Policy  of  Massa- 
chusetts from  1780  to  1905,"  in  Publications  of  the  American  Economic 
Association,  3d  series,  viii.     1907. 

Chapman,  J.  W.  "  State  Tax  Commissions  in  the  United  States,"  in  Johns 
Hopkins  University  Studies,  xv,  nos.  10,  11.    1897. 

Cleveland,  F.  A.  and  Powell,  F.  W.  Railroad  Promotion  and  Capitali- 
zation.   New  York,  1909. 

Davis,  W.  W.    "  Reconstruction  in  Florida,"  in  Columbia  Studies,  Uii.  1912. 

Day,  E.  E.  History  of  the  General  Property  Tax  in  Massachusetts  during 
the  Seventeenth  Century  (unpublished) . 

Douglas,  C.  H.  P.  "  Financial  History  of  Massachusetts,"  in  Columbia 
Studies,  i,  no.  4.     1892. 

DuRAND,  E.  D.    The  Finances  of  New  York  City.    New  York,  1898. 

Eastman,  F.  M.  Taxation  for  State  Purposes  in  Pennsylvania.  Philadelphia, 
1898. 

Ely,  R.  T.    Taxation  in  American  States  and  Cities.    New  York,  1888. 

Evans,  N.  W.    Taxation  in  Ohio:  a  History.    Columbus,  1906. 

Taxation  of  Personal  Property  in  Ohio.    Columbus,  1903. 

Fairlie,  J.  A.  "  Centralization  of  Administration  in  New  York,"  in  Colum- 
bia Studies,  ix,  no.  3.    1898. 

A  Report  on  Revenue  and  Finance  Administration,  prepared  for  the 

Efficiency  and  Economy  Committee.    Springfield,  Illinois,  1914. 

Fankhouser,  W.  C.  "  A  Financial  History  of  California,"  in  University  of 
California  Publications  in  Economics,  iii,  no.  2.    1913. 

Friedman,  H.  C.  "  The  Taxation  of  Corporations  in  Massachusetts,"  in 
Columbia  Studies,  xxvii,  no.  3.    1907. 

Haig,  R.  M.  "  A  History  of  the  General  Property  Tax  in  Illinois,"  in 
University  of  Illinois  Studies,  iii,  nos.  i,  2.    1914. 

The  Work  of  the  Colorado  Tax  Commission.     1916. 

Hamilton,  A.    The  Federalist.    Lodge  edition.    New  York,  1892. 
Hanna,  H.  S.    "  A  Financial  History  of  Maryland,  1789-1848,"  in  Johns 

Hopkins  University  Studies,  xxv.     1907. 
Hedrick,  W.  O.    History  of  Railroad  Taxation  in  Michigan.    Lansing,  191 2. 
Howard,  G.  E.    Local  Constitutional  History  of  the  United  States.     2  vols. 

Baltimore,  1889. 
HusE,  C.  P.     "  The  Fmancial  History  of  Boston,"  in  Harvard  Economic 

Studies,  XV.     1916. 
Interstate  Commerce  Commission.    Railways  in  the  United  Stales.    Part 

V,  The  Taxation  of  Railways.    Washington,  1903. 


BIBLIOGRAPHY  643 

Jones,  F.  R.    "  History  of  Taxation  in  Connecticut,"  in  Johns  Hopkins 

University  Studies,  xiv.     1896. 

JuDSON,  F.  M.    Taxation  in  Missouri.    Columbia,  1900. 

Kinsman,  D.  O.  "  The  Income  Tax  in  the  Commonwealths  of  the  United 
States,"  in  Publications  of  the  American  Economic  Association,  3d  series, 
iv.     1903. 

McCrea,  R.  C.  "  Taxation  of  Transportation  Companies  in  the  United 
States,"  in  Report,  U.  S.  Indtistrial  Commission,  ix,  1005-1091. 

Miller,  E,  T.    A  Financial  History  of  Texas.    19 16. 

Moore,  J.  R.  "  Taxation  of  Corporations  in  Illinois  other  than  Railroads 
since  1872,"  in  University  of  Illinois  Studies,  ii,  no.  i.     1913. 

Phelan,  R.  V.  "  The  Financial  History  of  Wisconsin,"  in  Bulletin  of  the 
University  of  Wisconsin,  no.  193.     1908. 

Plehn,  C.  C.    Introduction  to  Public  Finayice.    3d  edition.    New  York,  191 1. 

"  The  General  Property  Tax  in  California,  "in  Publications  of  the  Ameri- 
can Economic  Association,  ii,  no.  3.     1897. 

Rawles,  W.  a.  "  Centralizing  Tendencies  in  the  Administration  of  In- 
diana," in  Columbia  Studies,  xvii,  no.  i.    1903. 

Repley,  W.  Z.  "  The  Financial  History  of  Virginia,"  in  Columbia  Studies, 
iv,  no.  I.     1893. 

Robinson,  M.  H.  "  A  History  of  Taxation  in  New  Hampshire,"  in  Ptibli- 
cations  of  the  American  Economic  Association,  iii,  no.  3.    3d  series.    1902. 

ScHMECKEBiER,  L.  F.  "  Taxation  in  Georgia,"  in  Johns  Hopkins  University 
Studies,  xviii,  no.  5.    1900. 

Schwab,  J.  C.  "  History  of  the  New  York  General  Property  Tax,"  in  Pub- 
lications of  the  American  Economic  Association,  v.    1890. 

Seligman,  E.  R.  a.    Essays  in  Taxation.    8th  edition.    New  York,  1913. 

The  Income  Tax.    New  York.     191 1. 

The  Shifting  and  Incidence  of  Taxation.    3d  edition.    New  York,  1910. 

Snider,  G.  E.  "The  Taxation  of  Gross  Receipts  in  Wisconsin,"  in  Publica- 
tions of  the  American  Economic  Association,    vii,  3d  series.     1906. 

United  States  Bureau  of  the  Census.  "  Commercial  Valuation  of  the 
Operating  Property  of  the  Railways  of  the  United  States."  Twelfth 
Census,  Bulletin  21.     1904. 

Report  on  Wealth,  Debt  attd  Taxation.     1907. 

Reports  of  the  thirteenth  Census,  i-xi. 

Report  on  Wealth,  Debt  and  Taxation,  191 3.    2  vols,  1915. 

United  States  Bureau  of  Corporations.  Reports  on  the  Taxation  of 
Corporations.     Parts  1-6.     191 2-13. 

Special  Report  on  Taxation.     1914. 

United  States  Industrial  Commission.    Report,    ix,  1901. 

VmEBERG,  S.    "  Provincial  and  Local  Taxation  in  Canada,"  in  Columbia 

Studies,  Iii,  no.  i.     1912. 
Upson,  L.  D.    "  Sources  of  Municipal  Revenue  in  Illinois,"  in  University  of 

Illinois  Studies,  i,  no.  3.     191 2. 
Wells,  D.  A.    Theory  and  Practice  of  Taxatiott.    New  York,  1900. 
Whitten,  R.  H.    "  Public  Admmistration  in  Massachusetts,"  in  Columbia 

Studies,  viii,  no.  4.     1898. 


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Whitten,  R.  H.     The  Valuation  of  Public  Service  Corporations.    New  York, 

1912. 
Williamson,  C.  C.    "  The  Finances  of  Cleveland,"  in  Columbia  Studies, 

XXV,  no.  3.     1907. 
WoLCOTT,  O.    "  Report  on  Direct  Taxes,  submitted  to  Congress  on  April 

4th,  1796,"  in  American  State  Papers  on  Finance,  i,  414  flf. 
Wood,  F.  A.    "  History  of  Taxation  in  Vermont,"  in  Columbia  Studies,  iv, 

no.  3.     1894. 

"  The  Finances  of  Vermont,"  in  Columbia  Studies,  Hi.    19 13. 

II.    ARTICLES,  REVIEWS,  ADDRESSES,  AND  OTHER  SPECIAL 

DOCUMENTS 

Adams,  H.  C.     "  Recent  Changes  in  the  Taxing  Laws  of  Michigan,"  in 

Quarterly  Journal  of  Economics,  xvi,  116. 
Adams,  T.  S.    "  Mortgage  Taxation  in  Wisconsin,"  in  Quarterly  Journal  of 

Economics,  xxii,  i. 

"  Address  before  the  Supervisors  of  Assessment,"  in  Proceedings  of 

the  Ninth  Annual  Meeting  of  the  Supervisors  of  Assessment.     Madison, 
1910. 

"  The  Valuation  of  Real  Estate,"  in  Proceedings  of  the  Minnesota 

Academy  of  Social  Science,  pp.  79-104.    1907. 

"  Mortgage  Statistics  and  Taxation  in  Wisconsin  and  Neighboring 

States."    Wisconsin  Tax  Commission,  Report.    Appendix  B.    1907. 

"  The  Wisconsin  Tax  Decision  of  1906,"  in  Quarterly  Journal  of  Eco- 
nomics, xxi,  492. 

"  Separation  of  the  Sources  of  State  and  Local  Revenue  as  a  Program 

of  Tax  Reform,"  in  Proceedings  of  the  National  Tax  Conference,  pp.  516- 
527.     1907. 

"  The  Wisconsin  Income  Tax,"  in  American  Economic  Review,  i,  906. 

1911. 

"  The  Wisconsin  Income  Tax,"  in  Political  Science  Quarterly,  xxviii, 

569.     1913. 

"  The  Valuation  of  Railway  Property  for  Taxation,"  in  Journal  of 

Political  Economy,  xxiii,  i. 

Allen,  R.  C.  "  Michigan  Iron-Ore  Reserves;  Methods  of  Appraisal  for 
Taxation,"  in  Mining  and  Engineering  World,  September  12,  1914. 

Andrews,  C.  A.  "  The  Taxation  of  Corporate  Franchises  in  Massachu- 
setts," in  Yale  Review,  xix,  357. 

Andrews,  G.  H.  and  Others.  Report  of  the  Committee  appointed  to  attend  the 
Meeting  of  the  State  Board  of  Equalization.  In  Board  of  Aldermen,  Octo- 
ber 14,  1875. 

Andrews,  G.  H.  Speech  before  the  Assembly  Committee  on  Ways  and  Means 
of  the  State  of  New  York.    October  6,  1874. 

Angell,  E.  a.    "  The  Tax  Inquisitor  System  in  Ohio,"  in  Yale  Review,  v, 

350- 
Beck,  J.  A.    "  Taxation  by  the  State  of  Pennsylvania,"  in  Proceedings  of  the 
National  Tax  Conference,  pp.  531-550.    1907. 


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Boyle,  J.  A.  "  Review  of  Plehn's  Introduction  to  Public  Finance,"  in  the 
Economic  Bulletin,  iii,  45.     1910. 

"  Methods  of  Assessment  as  applied  to  different  Classes  of  Subjects," 

in  Proceedings  of  the  National  Tax  Conference,  pp.  128-168.     1907. 

Brown,  A.  0.    "  A  Tax  Commission  with  Power,"  in  National  Tax  Bulletin, 

ii,  94. 
Brown,  T.  H.    Analysis  of  Returns  of  Local  Registers  of  Deeds.    1904. 
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Tax  Conference,  pp.  271-288.     1911. 

"  The  General  Property  Tax,"  reprinted  from  the  Boston  Transcript. 

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"  The  Taxation  of  Corporations  in  Massachusetts,"  in  Quarterly  Journal 

of  Economics,  xxi,  192. 

"  A  Classified  Property  Tax,"  in  Proceedings  of  the  National  Tax  Con- 
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"  The  Massachusetts  Income  Tax,"  in  National  Tax  Bulletin,  i,  125. 

"  The  Taxation  of   Property  and  Incomes  in   Massachusetts,"   in 

Quarterly  Journal  of  Economics,  xxxi,  i. 

"  The  Separation  of  State  and  Local  Revenues,"  in  Quarterly  Journal 

of  Economics,  xxiv,  437. 

"  The  State  Income  Tax  versus  the  Classified  Property  Tax,"  in  Pro- 
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Carver,  T.  N.  "The  Tax  Inquisitor  System  in  Ohio,"  in  Publications  of  the 
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Chittenden,  A.  K.  and  Irion,  H.  The  Taxation  of  Forest  Lands  in  Wiscon- 
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Coleman,  G.  S.  "  Special  Franchise  Taxation  in  New  York,"  in  Proceed- 
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CoRBiN,  W.  H.  "  New  Tax  Legislation  in  Connecticut,"  in  National  Tax 
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Cowles,  H.  V.  and  Leenhout,  G.  H.  How  to  assess  Property  in  Cities  and 
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Crandon,  F.  p.  Arguments  as  to  the  true  Value  of  the  General  Property  of 
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Curtis,  G.  Tax  Reforms  and  Local  Self-Governmcnt.  Address  before  the 
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DiTTEY,  R.  M.  Taxation  and  Gas  Companies.  An  Address  before  the  Ohio 
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646  BIBLIOGRAPHY 

DiTTEY,  R.  M.  "  Taxation  and  the  Uniform  Rule  in  Ohio,"  in  Proceedings 
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Dixon,  F.  H.  "  The  Interstate  Commerce  Act  as  amended  in  1910,"  in 
Quarterly  Journal  of  Economics,  xxi,  22. 

Dunn,  J.  P.  "  The  New  Tax  Law  of  Indiana  and  the  Science  of  Taxation," 
a  series  of  letters  published  in  the  Indianapolis  Sentinel,  August  14, 
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Fairchild,  F.  R.  "  The  Ideal  System  of  Taxation  for  New  England,"  in 
National  Tax  Bulletin,  ii,  187. 

Fellows,  W.  B.  "  The  Problems  encountered  in  establishing  Central 
Supervision  in  a  State  vmder  a  Town  Form  of  Government,"  in  Proceed- 
ings of  the  National  Tax  Conference,  pp.  469-477.    191 2. 

"  Taxation  in  New  Hampshire,"  in  ibid.,  pp.  177-187.    1915. 

Fetter,  F,  A.    "  Changes  in  the  Tax  Laws  of  New  York  State,"  in  Quarterly 

Journal  of  Economics,  xx,  151,  613. 
FouLK,  W.  D.    "  An  Industrial  Trade  Commission,"  in  Journal  of  Political 

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Freeman,  D.  R.    "  Defeat  of  the  Virginia  Tax  Reform  Bill,"  in  Proceedings 

of  the  National  Tax  Conference,  pp.  419-423.    1912. 
Gareeeld,  J.  R.    "  Listing  and  Valuation,"  in  Proceedings  of  the  National 

Tax  Conference,  pp.  11-16.    Buffalo,  1901. 
Gilbert,  J.  H.     "  Tax  Apportionment  in  Oregon,"  in  Political  Science 

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GiRDWOOD,  A.    "  Tax  Litigation  in  Maryland,"  in  National  Tax  Bulletin, 

ii,  24. 
Hart,  J.  C.    Speech  delivered  at  Greensboro,  Greene  County,  Georgia,  August 

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January  12,  1914. 
Hart,  W.  O.     "  The  License  System  in  Louisiana,"  in  Proceedings  of  the 

National  Tax  Conference,  pp   275-295.    1909. 
Haugen,  N.    "  The  Taxation  of  Money  and  Credits,"  in  Proceedings  of  the 

Minnesota  Academy  of  Social  Sciences,  pp.  138-168.    1907. 

The  Exemption  of  Credits.    Address  before  the  Assembly  Committee  on 

the  Assessment  and  Collection  of  Taxes.    April  22,  1903. 

Hedrick,  W.  O.  "  The  Theory  of  the  General  Property  Tax  in  Michigan," 
in  Proceedings  of  the  Michigan  Academy  of  Science,  pp.  267-274.    191 1. 

HoLCOMB,  A.  E.  "  The  Taxation  of  Public  Service  Corporations,"  in  Pro- 
ceedings of  the  National  Tax  Conference,  pp.  149-192.    191 1. 

Hollander,  J.  A.  "  The  Taxation  of  Intangible  Wealth  in  Maryland,"  in 
Quarterly  Journal  of  Economics,  xxii,  196. 

Howard,  T,  E.  "  Address  on  the  Indiana  Tax  Law,"  in  Proceedings  of  the 
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HuEBisrER,  S.  E.  "  Five  Years  of  State  Railroad  Control,"  in  Annals  of  the 
American  Academy,  xxxii,  138. 


BIBLIOGRAPHY  647 

James,  A.  E.  Statistical  Deductions  from  the  Inspections  of  Personal  Prop- 
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Annual  Meeting  of  the  Supervisors  of  Assessment.     1910. 

Johnson,  S.    Permanent  Tax  Commissions,  A  Comparative  Digest.    1910. 

JuDSON,  F.  N.  "  Mortgage  Taxation  in  Missouri,"  in  Quarterly  Journal  of 
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KIennan,  K.  K.  "  The  Wisconsin  Income  Tax  Report,"  in  Quarterly  Journal 
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Leber,  O.    "  Tax  Legislation  in  Maryland,"  in  National  Tax  Bulletin,  i,  137. 

Link,  D.  "  Remarks  on  the  Indiana  System  of  Taxation,"  in  Proceedings 
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LocKHART,  O.  C.  "  The  Assessment  of  Intangible  Property  in  Ohio  under 
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LuTZ,  H.  L.  "  The  Somers  System  of  Realty  Valuation,"  in  Quarterly  Jour- 
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Mathews,  J.  M.  "  Tax  Administration  in  New  Jersey,"  in  Journal  of 
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McCrea,  R.  C.  "  The  Taxation  of  Personal  Property  in  Pennsylvania,"  in 
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McDonald,  E.  L.    Taxation  of  Mortgages  in  Kentucky,  A  Brief  submitted  to 

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Phillips,  J.  B.  "  Need  of  a  State  Tax  Commission  in  Colorado,"  reprinted 
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648  BIBLIOGRAPHY 

Raper,  C.  L.     "  North  Carolina's  Taxation  Problem  and  its  Solution,"  in 

South  Atlantic  Quarterly,  xiv,  i. 
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Tax  Commission,  Report,  191 2,  ch.  15. 
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of  Economics,  xviii,  293. 
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American  Academy,  iv,  805. 
Secrist,  H.     "Home  Rule  in  Taxation,"  Quarterly  Journal  of  Economics, 

xxviii,  490. 
Seligman,  E.  R.  a.    "  The  Separation  of  State  and  Local  Revenues,"  in 

Proceedings  of  the  National  Tax  Conference,  pp.  485-514.    1907. 

"Mortgage  Taxation  in  New  York,"  in  Political  Science  Quarterly,  xv, 

640. 

"  The  Franchise  Tax  Law  in  New  York,"  in  Quarterly  Journal  of 

Economics,  xiii,  445. 

"  The  Importance  of  Precision  in  Assessments,"  in  Proceedings  of  the 

National  Tax  Conference,  pp.  211-219.     1908. 

Sprague,  R.  J.    "  Tax  Problems  in  Maine,"  m  ibid.,  pp.  461-474.    1907. 

Stamp,  J.  C.  "  The  Tax  Experiment  in  Wisconsin,"  in  Economic  Journal, 
xxiii,  142. 

Townsend,  T.  C.  "  Taxation  of  Coal,  Oil  and  Gas,"  in  Proceedings  of  the 
National  Tax  Conference,  pp.  395-409.    1908. 

Vaughan,  G.  The  Inheritance  Tax  Law  of  Arkansas.  A  Paper  before  the 
Little  Rock  Bar  Association.    1916. 

Virtue,  G.  O.  "  The  Minnesota  Railway  Valuation,"  in  Quarterly  Journal 
of  Economics,  xxiii,  542. 

Wells,  D.  A.  "  The  Reform  of  Local  Taxation,"  in  North  American  Re- 
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Winn,  H.    Arguments  on  the  Doomage  Bill.    1891. 

HI.    REPORTS  OF  SPECIAL  AND  PERMANENT  T.AK 
COMMISSIONS 

(a)  State  Reports 
Alabama. 

State  Tax  Commissioner,  Annual  Reports,  1897-1906.    The  reports  for 

1 897-1900  are  published  in  one  volume. 
State  Tax  Commission,  Annual  Reports,  1907-1914. 
Arizona. 

State  Tax  Commission,  Biennial  Reports,  191 2- 

Report  of  the  Conference  of  the  Tax  Commissmi, 
Boards  of  Supervisors  and  County  Assessors. 
Annually,  1913- 
Arkansas.    State  Tax  Commission,  Biennial  Reports,  1910-12.    No  reports 

have  been  published  since  191 2. 
California. 

Report  of  the  Commission  on  Revenue  and  Taxation,  1906. 
Second  Report,  ibid.,  1910. 


BIBLIOGRAPHY  649 

California  —  continued. 

Report  of  the  State  Tax  Commission  of  California,  1917. 
State  Board  of  Equalization,  Annual  Reports,  187 1- 

S pedal  Report  showing  first  Effects  of  Sepa- 
ration.    191 1. 

Special  Report  on  the  Relative  Burden  of  State  and  Local  Taxation. 

1912. 
Colorado. 

Report  of  the  Revenue  Commission,  1901. 

State  Board  of  Equalization,  Annual  Reports,  1876- 

State  Tax  Commission,  Annual  Reports,  1912- 

CONNECTICUT. 

Report  of  the  Committee  appointed  by  the  General  Assembly  of  Connecticut, 

1844.    {Report  of  the  Special  Tax  Commission  of  1844.) 
Report  of  the  Special  Commission  of  Connecticut,  1868. 
Special   Tax  Commission  of  Connecticut.     Preliminary  Report,    1886; 

Final  Report,  1887. 
Report  of  the  Special  Commission  on  the  Taxation  of  Corporations  paying 

Taxes  to  the  State,  1913. 
Report  of  the  Special  Commission  on  Taxation  of  Woodland,  1913- 
Report  of  the  State  Tax  Commission  of  Connecticut,  1917. 
State  Tax  Commissioner,  Biennial  Reports,  1902- 
Delaware. 

Majority  Report  of  the  Delaware  Tax  Commission,  1893. 
Report  of  the  State  Revenue  and  Taxation  Commission,  1910.    Second  Re- 
port, 1913. 
Florida. 

Report  of  the  Tax  Commission  of  Florida,  191 2. 
State  Tax  Commission,  Biennial  Reports,  1914- 
Georgia.     State  Tax  Commissioner,  Amiual  Reports,  1914- 
Idaho.    State  Tax  Commission,  Report,  1914.    The  commission  was  abol- 
ished in  191 5. 
Illinois. 

Report  of  the  Revenue  Commission,  1886. 
Report  of  the  Special  Tax  Commission,  19 10. 
State  Board  of  Equalization,  Annual  Reports,  1868- 
Indiana. 

State  Board  of  Equalization,  Memorial  to  the  Legislature,  in  Auditor  of 

State,  Report,  1869,  pp.  41  ff. 
State  Board  of  Equalization,  Annual  Reports,  1868- 
State  Board  of  Tax  Commissioners.     Biennial  Reports,  1892- 

Annual  Proceedings,  1891- 
Proceedings  of  the  Conferences  of  County  Assessors.    Annually,  1902- 

lOWA. 

Report  of  the  Revenue  Commission,  1893. 
Report  of  the  Special  Tax  Commission,  19 12. 
Kansas. 

Report  of  the  Special  Tax  Commission,  1901. 


650  BIBLIOGRAPHY 

Kansas  —  continued. 

State  Tax  Commission,  Biennial  Reports  of  Proceedings,  1908- 

Biennial  Reports  to  the  Legislature,  1909- 
Proceedings  of  the  Conference  Conventions  of  the  County  Assessors,  1908, 
1910,  1911,  1913,  191S,  1917. 
Kentucky. 

Report  of  the  Advisory  Tax  Commission,  1909. 
Report  of  the  Special  Tax  Commission,  191 2-14. 
Report  of  the  Kentucky  Tax  Commission,  1916. 
Louisiana.    Report  of  the  Tax  Commission,  1908. 
Maine. 

Report  of  the  Special  Tax  Commission,  1890. 
Report  of  the  Tax  Commission,  1908. 
State  Board  of  Assessors,  Annual  Reports,  1891- 
Marylakd. 

Report  of  the  Maryland  Tax  Commission,  1888. 

Report  of  the  Commission  for  the  Revision  of  the  Taxation  System  of  the 
State  of  Maryland  and  the  City  of  Baltimore,  1913.     (Report  of  the  Special 
Tax  Commission  of  Maryland,  191 3.) 
State  Tax  Commissioner,  Biennial  Reports,  1880-1914. 
State  Tax  Commission,  Biennial  Reports,  1915- 
Massachusetts. 

Journal  and  Documents  of  the  Valuation  Committee  of  i860.    Boston,  1861. 

Report  of  the  Commission  on  Taxation,  1875. 

Report  of  the  Joint  Special  Committee  on  Taxation,  1894. 

Report  of  the  Commission  on  Taxation,  1897. 

Report  of  the  Joint  Special  Committee  on  Taxation,  1907. 

Report  of  the  Commission  on  Taxation,  1908. 

Report  of  the  Commission  to  investigate  the  Laws  relating  to  Taxation,  1909. 

(Report  of  the  Commission  on  Tax  Laws,  1909.) 
Report  of  the  Joint  Special  Committee  on  Municipal  Finance,  1913. 
Report  of  the  Special  Commission  on  Taxation,  19 16. 
State  Tax  Commissioner,  Annual  Reports,  1865- 
Michigan. 

Preliminary  and  Final  Reports  of  the  Commission  of  Inquiry  into  Taxa- 
tion, 1911. 
State  Board  of  Equalization,  Quinquennial  Reports,  1851-1911.  Reports 

published  every  third  and  fifth  year  since  19 11. 
State  Board  of  Tax  Commissioners,  Biennial  Reports,  1902- 

"        "       "     "  "  Appraisal  of  the  Mining  Properties  of 

Michigan,  1911. 
"        "       "     "  "  Cash  Value  Assessments,  1914. 

Minnesota. 

Report  of  the  Special  Tax  Code  Commission,  1902. 
Minnesota  Tax  Commission,  Preliminary  Report,  1907. 

Biennial  Reports,  1908- 
State  Railroad  and  Warehouse  Commission.    "  Valuation  of  the  Rail- 
roads," in  Report,  1907,  pp.  14-20,  and  ibid.,  1908,  pp.  12-168. 


BIBLIOGRAPHY  65 1 

Missouri.    Bureau  of  Labor,  "  Taxation  and  Real  Estate,"  in  Report,  pp. 

83-129.     1896. 
Montana.    State  Tax  Commissioner,  Biennial  Reports,  1914- 

Nevada. 

Report  of  the  Meeting  of  the  Citizens'  Economy  and  Taxation  Committee. 

Reno,  1913. 
Report  of  the  Nevada  Citizens'  Economy  and  Taxation  Committee,  1913. 
State  Board  of  Assessors,  Annual  Proceedings,  1902-12. 
State  Tax  Commission,  Biennial  Reports,  1914- 
New  Hampsihre. 

Report  of  the  Tax  Commissioners  of  the  State  of  New  Hampshire,  1878. 

{Report  of  the  New  Hampshire  Tax  Commission  of  1878.) 
Report  of  the  Tax  Commission,  1908. 
State  Tax  Commission,  Annual  Reports,  1911- 
New  Jersey. 

Report  of  the  Commission  to  revise  the  Tax  Laws  of  the  State,  1868. 

Report  of  the  Special  Tax  Commission,  1880. 

Report  of  the  Tax  Commission,  1884. 

Report  of  the  Commission  appointed  by  Governor  Griggs  to  investigate  the 

Subject  of  Taxation  in  the  State  of  New  Jersey,  1897. 
Report  of  the  Special  Tax  Commission,  1905. 
Report  by  Charles  Hansel  on  the  Revaluation  of  Railroads  and  Canals  in 

New  Jersey,  191 2. 
Report  of  the  Commission  to  investigate  Tax  Assessments  in  the  State  of 

New  Jersey,  191 2. 
Report  of  the  Commission  for  the  Survey  of  Municipal  Financing,  191 5. 
State  Board  of  Assessors,  Annual  Reports,  1884-1915. 
State  Board  of  Taxation,  Annual  Reports,  1891-1904. 
Board  of  Equalization  of  Taxes,  Annual  Reports,  1905-15. 
State  Board  of  Taxes  and  Assessments,  Annual  Reports,  191 5-    (In  three 

parts.) 
New  Mexico. 

State  Tax  Commission,  Biennial  Reports,  19 16- 

New  York. 

Report  of  the  Committee  upon  Finance  and  Internal  Improvements  of 
the  State  of  New  York.     Reprinted  at  Boston,  1839. 

Report  to  the  Boards  of  Supervisors  of  the  Tax  Commissioners  on  the  As- 
sessment and  Collection  of  Taxes,  1850. 

Report  by  the  Joint  Special  Committee  appointed  by  the  Legislature  of  New 
York,  1863. 

Report  of  the  Commissioners  appointed  to  revise  the  Laws  for  the  Assess- 
ment and  Collection  of  Taxes,  187 1.  (Report  of  the  Special  Tax  Com- 
mission of  New  York,  1871.) 

Second  Report,  ibid.,  1872. 

Report  of  the  Committee  of  the  Board  of  Aldermen  appointed  to  attend  the 
Meeting  of  the  State  Board  of  Equalization.  Presented  to  the  Board  of 
Aldermen,  October  14,  1875. 


652  BIBLIOGRAPHY 

New  York  —  contintied. 

Report  of  the  Joint  Committee  of  the  Senate  and  Assembly  relative  to  Taxa- 
tion for  State  and  Local  Purposes.  New  York,  1893.  {Report  of  the 
Special  Tax  Cotnmission  of  New  York,  1893.) 

Report  of  Counsel  to  Revise  the  Tax  Laws  of  the  State  of  New  York,  1893. 

Report  of  the  Joint  Committee  on  Taxation,  1900. 

Report  of  the  Special  Tax  Commission,  1907. 

Report  of  the  Joint  Legislative  Committee  on  Taxation,  19 16. 

Board  of  State  Assessors,  Annual  Reports,  1860-63;  1873-95.  No  re- 
ports published,  1863-72,  inclusive. 

Board  of  State  Tax  Commissioners,  Annual  Reports,  1896-1915. 

State  Tax  Commission,  Annual  Reports,  1916- 

"       "  "  Review  of  Local  Assessments,  igit. 

North  Carolina.    State  Tax  Commission,  Annual  Reports,  1902- 
NoRTH  Dakota.    State  Tax  Commission,  Biennial  Reports,  191 2-14.    No 

report  published  in  1916. 
Ohio. 

Report  of  the  Tax  Commission  of  Ohio,  1893. 

Report  of  the  Honorary  Commission  appointed  by  the  Governor  to  investigate 
the  Tax  System  of  Ohio  and  recommend  Improvements  therein,  1908. 
{Report  of  the  Ohio  Tax  Commission  of  1908) 

Report  of  the  Special  Committee  of  the  Senate  upon  the  Subject  of  Taxation, 
1910. 

State  Board  of  Equalization.  Reports  for  the  various  equalizations  from 
1825  to  1853  pubUshed  in  one  volume. 

Decennial  Reports,  1 860-1900. 

State  Tax  Commission,  Recommendations  to  the  Governor  and  General  As- 
sembly in  the  Form  of  a  Proposed  Bill,  19 13. 

State  Tax  Commission,  Annual  Reports,  1910- 
Ontario.    Report  of  the  Commission  on  Railway  Taxation,  1905. 
Oregon. 

Report  of  the  Board  of  Commissioners  of  Assessment  and  Taxation,  1886. 

Report  of  the  Special  Senate  Committee  on  Assessment  and  Taxation,  1881. 

Report  of  the  Board  of  Commissioners  appointed  for  the  purpose  of  examin- 
ing and  reporting  on  Matters  of  Assessment  and  Taxation,  1906.  {Re- 
port of  the  Special  Tax  Commission  of  Oregon,  1906.) 

Board  of  State  Tax  Commissioners,  Biennial  Reports,  1911-13. 

State  Tax  Commission,  Biennial  Reports,  191 5- 
Rhode  Island, 

Report  of  the  Joint  Special  Committee  on  the  Subject  of  Property  liable  to 
and  exempt  from  Taxation,  1875. 

Report  of  the  Joint  Special  Committee  on  the  Taxation  Laws  of  the  State, 
1910.    {Report  of  the  Joint  Special  Committee  on  Taxation,  1910.) 

Special  Report  of  the  Joint  Special  Committee  on  the  Taxation  Laws  of  the 
State,  191 1.  {Special  Report  of  the  Joint  Special  Committee  on  Taxa- 
tion, 191 1.) 

Second  Report  of  the  Joint  Special  Committee  on  the  Taxation  Laws  of  the 
State,  191 1.    (Short  title  same  as  above.) 


BIBLIOGRAPHY  653 

Rhode  Island  —  continued. 

Third  Report  of  the  Joint  Special  Committee  on  the  Taxation  Laws  oj  the 
State,  igi2.    (Short  title  same  as  above.) 

Board  of  State  Tax  Commissioners,  Annual  Reports,  191 2- 

Specicd  Report  of  the  Board  of  Tax  Commissioners  on  New  Sources  of 
Revenue,  19 16. 
South  Dakota. 

Report  of  the  Special  Tax  Commission,  191 1.    (Unpublished.) 

State  Tax  Commission,  Biennial  Reports,  1914- 
Tennessee.    Report  of  the  Special  Commission  on  Taxation,  1915. 
Texas. 

Report  of  the  Special  Tax  Commission,  1899. 

State  Tax  Commissioner,  Annual  Reports,  1906-08;  191 2- 

No  reports  published  1909-11,  inclusive. 
Utah. 

Report  of  the  Special  Tax  Commission,  19 13. 

State  Board  of  Equalization,  Biennial  Reports,  1896- 
Vekmont. 

Report  of  the  Special  Commission  to  investigate  the  Laws  permitting  Double 
Taxation,  1900. 

Report  of  the  Commission  on  Taxation,  1908. 

Commissioner  of  State  Taxes,  Biennial  Reports,  1880- 

Special  Report  relating  to  Taxation,  1902. 
Virginia. 

Report  of  the  Tax  Commission,  1911. 

Report  of  the  Joint  Committee  on  Tax  Revision,  1914. 
Washington. 

State  Board  of  Tax  Commissioners,  Biennial  Reports,  1906- 

Proceedings  of  the  Convention  of  the  County  Assessors,  Annually,  1898- 
West  Virginia. 

Preliminary  and  Final  Reports  of  the  Tax  Commission,  1884. 

Preliminary  and  Final  Reports  of  the  Commission  to  revise  the  Tax  Laws,  ■ 
1902. 

State  Tax  Commissioner,  Bienyiial  Reports,  1906- 

Chief  Inspector  of  Public  Offices,  Biennial  Reports,  1910- 

Audit  of  the  Finances,  Annual  Report,  191 5- 

WlSCONSIN. 

Report  of  the  Tax  Commission,  1898. 

State  Tax  Commission,  Biennial  Reports,  1901-09  (except  1905),  1910- 

Report  of  the  State  Tax  Commission  on  the  Finances  of  the  State  Govern- 
ment, 191 1. 

Proceedings  of  the  Annual  Meetings  of  the  Supervisors  of  Assessment, 
1902-12. 
Wyoming.    State  Tax  Commissioner,  Biennial  Reports,  1910- 


654  BIBLIOGRAPHY 


(b)  MuOTCiPAL  Reports 

Baltimore.   Report  of  the  Advisory  Committee  on  Taxation  and  Revenue,  sub- 
mitted to  the  Mayor  of  Baltimore,  1908. 
Cleveland. 

Report  of  the  Special  Committee  of  the  Chamber  of  Commerce,  1895. 
Report  of  the  Special  Tax  Commission  of  the  City  of  Cleveland,  1915. 
Cambridge.    Report  of  Special  Committee  on  Study  of  the  Local  Real  Estate 

Assessment  Situation,  with  Recommendations,  191 5. 
New  York. 

Reports  of  the  Committee  on  State  and  Mtmicipal  Taxation  of  the  Chamber 
of  Commerce  of  the  City  of  New  York,  1900-10. 

1.  The  System  of  Taxation  in  New  York,  Oct.  4,^900. 

2.  Report,  January  j,  iQoi,  with  a  draft  of  an  act  to  amend  the  Tax  Law 
by  providing  for  the  Apportionment  of  State  Taxes  and  for  Local  Op- 
tion in  Taxation. 

3.  Report,  March  7,  igoi,  on  the  Tax  Bills  pending  in  the  Legislature. 

4.  Report,  May  2,  igoi. 

5.  Report  on  the  Stranahan  Mortgage  Tax,  Feb.  6,  1902. 

6.  Report  on  the  Corporation  Tax  Bill,  Feb.  6,  1902. 

7.  Reports  on  the  System  of  Taxation  in  New  York,  June  5,  1902  and 
October  i,  1903,  published  together. 

8.  Report  on  the  Taxation  of  Mortgages,  Jan.  27,  1903. 

9.  Report  on  the  Taxation  of  Mortgages,  April  2,  1903. 

10.  Report  on  the  Taxation  of  Mortgages,  Jan.  7,  1904. 

11.  Supplementary  Report  on  the  Taxation  of  Mortgages,  Feb.  4,  1904. 

12.  Report  on  Tax  Measures  pending  in  the  Legislature,  March  2,  1905. 

13.  Report  on  State  Debt  Limitations,  April  6,  1905. 

14.  Report  on  the  Taxation  of  Mortgages,  Feb.  i,  1906. 

15.  Report  on  the  bill  "  to  amend  section  four  of  the  tax  law  in  relation  to 
the  exemption  of  personal  property  from  taxation,"  May  4,  1910. 

Report  of  the  Advisory  Commission  of  the  City  of  New  York  on  Taxation 

and  Finance,  May  9,  1905. 
Report  of  the  Subcommittee  of  the  Board  of  Taxes  and  Assessments  of  New 

York,  1913. 
Final  Report  of  the  Committee  on  Taxation  of  the  City  of  New  York,  19 16. 
Norwood.    Report  of  the  Committee  on  Taxation,  19 10. 
Pittsburgh.    Report  of  the  Committee  on  Taxation  Study  to  the  Council  of 
the  City  of  Pittsburgh,  19 16. 


IV.  MISCELLANEOUS 

"  The  Tax  Inquisitor  System  in  Ohio,"  in  Quart.  Jour,  of  Econ.,  ix,  460. 
"  The  Taxation  of  Corporations  in  Ohio  and  Indiana,"  in  Quart.  Jour,  of 

Econ.,  xii,  352. 
Michigan.    Constitutional  Convention  Report  of  the  Proceedings  and  Debates. 

Lansing,  1850. 


BIBLIOGRAPHY  655 

New  York.  Debates  of  the  Constitutional  Convention  of  1867-1868.  3  vols. 
Albany,  1868. 

Omo.  Proceedings  and  Debates  of  the  Constitutional  Convention.  2  vols. 
Columbus,  191 2. 

*'  Progress  of  the  Valuation  of  Railways,"  in  Railway  Age  Gazette,  xlv,  103- 
104. 

**  The  Valuation  of  Washington  Railways,"  in  Railway  Age  Gazette,  xlv,  133. 

"  The  Valuation  of  Railways  in  Minnesota,"  in  Railway  Age  Gazette,  xliv, 
877-880. 

"  Report  of  the  Committee  for  an  Investigation  of  Finances  of  Municipali- 
ties," in  Bulletin  of  the  Ohio  Legislative  Reference  Department.    191 5. 

"  Taxation  in  Ohio,"  in  Report  of  the  Civic  League  of  Cleveland. 

AxjDiTOR  OF  Omo.    Comparative  Financial  Statistics.     1914. 

California  Tax  Association  .    The  Problem  of  High  Taxes  in  San  Francisco. 

1915- 

Tax  Reform  in  California.     1915. 

"Readjustments  in  Taxation,"  Annals  of  the  American  Academy,  58,  19x5. 


INDEX 


INDEX 


Abatements,  Procedure  in  allowing,  in    Appeals,  in  Kansas,  451;  in  New  York 


Massachusetts,  11;  in  Vermont,  12. 
Adams,  H.  C,  106,  303,  308. 
Adams,  T.  S.,  26,  39,  43,  246,  247,  256, 

261,  322,  410,  438,  548. 
Administration,  Expansion  of,  in  Minne- 
sota, 385. 
Administrative     centralization     in     the 

South,  Recommendations  for,  32. 
Administrative    centralization    in    taxa- 
tion. Need  of,  in  New  York,  182, 
183. 
Partial  abandonment  of,  in  Illinois, 

74,  75;  in  Washington,  41,  42. 
Tendencies  toward,  3,  4. 
Value  of,  4. 
Ad  valorem  system  of  corporate  taxation, 
in  Michigan,  303;  in  North  Caro- 
lina,   569;     in   Oregon,   468;     in 
West  Virginia,  335. 
Comparison  with  tax  on  gross  earn- 
ings 262. 
Criticisms  of,  in   Minnesota,   409, 

410. 
Reasons  for  rise  of,  35. 
Advisory    commission    on    taxation    of 

Baltimore,  552. 
Advisory  supervision,  in   Kansas,   446, 

447;  in  Washington,  371. 
Alabama  tax  commission,  555  ff. 
Allen,  R.  C,  317. 

American  Industrial  Revolution,  29. 
Angell,  E.  A.,  12. 

Appeal,  of  corporation,  to  state  board  of 
assessors,  in  New  Jersey,  103,  in, 
112. 
To  state  board  of  taxation,  in  New 

Jersey,  108  ff. 
To  state  tax  commission,  in  Kansas, 
445,  446. 


195,   196,   200;    in  Oregon,  466;    in 
South  Carolina,  587;  in  West  Virginia, 
336;  in  Wisconsin,  274,  275. 
Apportionment  by  expenditure,  in  Con- 
necticut, 515;  in  Oregon,  459,  460. 
Appropriation,  for  tax  commissioner,  in 
Massachusetts,     143,    note;     in 
Texas,  568,  569. 
For  state  tax  commissions,  141  ff. 
Arbitration  of  tax  appeals,  in  Alabama, 

562;  in  Georgia,  583. 
Arizona  tax  commission,  605  ff. 
Arkansas  tax  commission,  589. 
Assessed    valuation    of    property.     See- 

Property,  Assessed  valuation  of. 
Assessed  valuation.  Ratio  of,  to  gross 

earnings,  in  Ohio,  408. 
Assessed  value.  Comparative,  in  Indiana, 

177. 

Assessment,  Basis  of,  in  Illinois,  74;   in 

Iowa,  30;   in  Minnesota,  390;   in 

Vermont,  20;  in  Washington,  354, 

360. 

Increase    of,    in    New    Hampshire, 

530- 
Inequality  of,  in  Maryland,  548;  in 
Massachusetts,    233;     in    South 
Carolina,    586;     in    Washington, 

355- 
Percentage  basis  of,  31. 
State  and  local,  in  Wisconsin,  238. 
Assessor,  Appointive,  recommended  in 
Kansas,  448. 
Central    appointment    of,    40;     in 
Ohio,  482. 
Assessors'  Convention.    See  Conference 

of  assessors. 
Assessors,  Extension  of  term  of,  in  Con- 
necticut, 519;  in  Oregon,  41,  note. 


6S9 


66o 


INDEX 


Assessors,  Inquisitorial  powers  of,  lo,  ii; 
in  Iowa,  13;  in  Ohio,  12,  13. 
Methods  of  selection  of,  8,  9. 
Recommendations   for  central   ap- 
pointment of,  41,  42. 
Removal   of,   in   Kansas,   450;     in 

Minnesota,  415. 
Special,    appointment   of,   in   New 

Hampshire,  529. 
Term  of  office  of,  41,  note. 
Assessors'  agreements,  in  Kansas,  425; 
in  Minnesota,  389;    in  Washing- 
ton, 371. 
Association,  in  Michigan,  292;    in 

Washington,  371. 
Manual,  in  Kansas,  449;  in  Michi- 
gan, 320. 
Assistants     to     tax     commissioner,     in 

Massachusetts,  230. 
Atkinson  Law,  290. 
Auditing  and  accounting,  Uniform,  in 

Kansas,  455,  456. 
Audit  of  public  offices,  in  West  Virginia, 

348. 
Auditor,  County.  See  County  auditor. 
Auditor,  Duties  of,  in  Ohio,  501,  502. 
Automobiles,  Assessment  of,  in  Connecti- 
cut, 516. 
Average   rate   of   taxation,    in   Massa- 
chusetts, 218;  in  Wisconsin,  252,  note. 

Bank  deposits,  in  Washington,  377;    in 

West  Virginia,  344. 
Banks,  Method  of  equalizing  assessment 
of,  in  Ohio,  56. 
Taxation  of,  in  Ohio,  53  ff. 
Underassessment  of,  in  Florida,  579. 
Bank  stock.  Central  assessment  of,  in 
Vermont,  543. 
Taxation  of,   in   Kansas,   455;    in 
Maine,  124;  in  Michigan,  323;  in 
Minnesota,  417;  in  Rhode  Island, 
538;  in  Washington,  378. 
Basis  of  assessment,  in  Kansas,  433;  in 
Miimesota,    388,    390,    392;     in 
Illinois,  30;   in  Indiana,  151;    in 
Iowa,  30;  in  Washington,  360. 
Benton,  E.  J.,  9,  424. 


Bicycles,  Taxation  of,  in  Maine,  123. 

Biographical  sketch  of  members  of  Ohio 
State  Board  of  Equalization,  51,  52, 
note. 

BUss,  Z.  W.,  534,  536. 

Board  of  Public  Works,  of  West  Vir- 
ginia, 333. 

Board  of  Railroad  Commissioners,  in 
North  Carolina,  569. 

Board  of  State  Assessors  and  Appraisers, 
in  Ohio,  493. 

Board  of  State  Assessors,  of  Maine, 
118  ff.;  of  New  York,  57  ff. 

Board  vs.  the  single  official,  131  ff. 

Boards  of  review.  Local,  14-16. 

Bodwell,  Governor,  118. 

Bogart,  E.  L.,  49,  53,  54,  55,  56,  481, 491. 

Bond  limit,  in  constitution  of  Nevada, 
619. 

Bonds.  See  Stocks  and  bonds. 

Boston  tax  rate,  28. 

Boyle,  J.  A.,  5. 

Brindley,  J.  E.,  9,  13,  22,  24. 

Brough,  E.,  9,  17,  32. 

Brown,  A.  O.,  524,  525. 

Brown,  W.  v.,  576. 

Budget  procedure.  Reform  of,  in  Con- 
necticut, 520. 

Bullion  tax  law,  in  Arizona,  609. 

Bullock,  C.  J.,  7,  19,  28,  30,  31,  46, 
99,  214,  220,  224,  226,  233,  281,  402, 
481. 

Bureau  of  local  assessments,  equalization 
and  statistics,  in  New  York,  194. 

Business  corporations.  See  Private  busi- 
ness corporations. 

California  special  tax  conmiission,  93. 
California  state  board  of  equalization, 
84  ff. 
Policy  of,  in  equalization,  91,  92. 
California  state  tax  association,  43,  98, 

99. 
California  state  tax  commission,  96,  98. 
Camden  county,  Appeal  from  assessment 

in,  109. 
Canals,  Taxation  of,  in  New  Jersey,  loi, 

102. 


INDEX 


66i 


Capital  stock,  Taxation  of,  in  California, 
90. 

Car  companies.  Taxation  of,  in  Kansas, 
444;  in  Washington,  369;  in  Utah,  83. 

Carver,  T.  N.,  12. 

Cash  value,  in  Ohio,  486. 

Census,     United     States,     Commercial 
valuation  of  Railway  Operating 
Property  in  the  United  States,  34. 
Wealth,  Debt,  and  Taxation,  238. 

Centralized  administration  of  corporation 
taxes.  Sec  Corporation  taxes,  Cen- 
tralized administration  of. 

Certiorari,  Writ  of,  in  New  York,  198. 

Chapman,  J.  W.,  5,  28. 

"  Chattels  real,"  337. 

Chicago  Teachers'  Federation,  70,  75,  76. 

Civil  War,  Financial  burden  of,  23,  24, 

385. 
Classification  of  property  for  taxation,  in 
Minnesota,    391,    392,    419;     in 
Oregon,  476,  note. 
Inequalities  of,  in  Minnesota,  402, 

405- 
Recommended,   in   Michigan,   327; 
in  New  Jersey,  115;  in  Washing- 
ton, 377;  in  West  Virginia,  349. 
Coal,  oil  and  gas  resources.  Taxation  of, 

in  West  Virginia,  337,  338. 
Cole,  Law,  494. 
Colorado  tax  commission,  25,  26,  596  ff.; 

Powers  of,  597. 
Commissioners  of  equalization  in  Con- 
necticut, 511, 513. 
Comparison    of    assessed    with    Census 
valuation  of   farm   lands  in  Indiana, 
154,  156. 
Conference  of  assessors  and  tax  commis- 
sioners, in  Arizona,  606,  610. 
Conference  of  assessors,  in  California,  86; 
in  Colorado,  603;   in  Florida,  518;   in 
Indiana,  161,  176,  179;  in  New  York, 
194;    in  Utah,  78;    in  West  Virginia, 
340;  in  Wisconsin,  271,  272. 
Conference  of  county  auditors,  in  South 

Dakota,  613. 
Confiscation  of  property,  by  high  tax 
rates,  30. 


Constitutional  provisions  on  taxation,  25. 
Constitutional  amendment,  in  California, 
96;  in  Colorado,  599;   in  Minnesota, 
411. 
Connecticut,  Early  ta.xation  in,  511. 

Joint   committee   on   taxation   and 

state  finance,  515. 
Tax  commissioner  of,  511  fT.;    Rec- 
ommendations of,  521. 
Cook  county.  Assessment  of  corporations 

in,  75- 
"  Cooley- Adams  "  appraisal  of  railroad 

property,  290,  317. 
Cooley,  M.  E.,  303. 

Corporate   assessment.    Method    of,    in 
Arizona,  608;  in  California,  95;  in  Col- 
orado, 602;   New  Hampshire,  528;  in 
Ohio,  495,  496;  in  South  Dakota,  617; 
in  West  Virginia,  334,  335;  in  Wiscon- 
sin, 286  fT. 
Corporate  assessments.  Equalization  of, 
to  assessment  of   other  property,   in 
Te.xas,  567,  568;  in  Washington,  361. 
Corporate  assets.  Taxation  of,  in  Mary- 
land, 551. 
Corporate    excess.    Assessment    of,    in 
Massachusetts,  219,  note. 
Defective  assessment  of,  in  Minne- 
sota, 414. 
Determination  of,  in  Massachusetts, 

216,  217;  in  Rhode  Island,  536. 
Distribution  of  tax  on,  in  Massa- 
chusetts, 221,  222. 
Review  of  assessment  of,  in  Rhode 

Island,  539. 
Taxation  of,  in  Alabama,  561;  in 
Illinois,  74;  in  Kansas,  443;  in 
Maryland,  550;  in  Massachusetts, 
216 ff.;  in  Minnesota,  418;  in 
Rhode  Island,  535,  536;  in  Texas, 

565- 

Corporate  property.  Assessment  of,  in 
Colorado,  624;  in  Indiana,  181  in 
Kansas,  439;  in  Michigan,  329;  in 
New  Hampshire,  554;  in  Ohio  508; 
in  Oregon,  468;  in  West  Virginia,  336. 

Corporate  ta.\ation.  Results  of,  in  Cali- 
fornia, 98. 


662 


INDEX 


Corporation  taxes,  Central  administra- 
tion of,  in  Alabama,  561;  in  Arizona, 
608,  609;  in  California,  94  ff.;  in 
Colorado,  601  ff.;  in  Connecticut,  518; 
in  Illinois,  72  ff.;  in  Indiana,  163  ff.; 
in  Kansas,  439  ff.;  in  Maine,  128,  129; 
in  Maryland,  549  ff.;  in  Massa- 
chusetts, 216  ff.;  in  Michigan,  301  ff.; 
in  Minnesota,  408  ff.;  in  New  Hamp- 
shire, 528;  in  New  Jersey,  loiff.;  in 
New  York,  196  ff.;  in  North  Caro- 
lina, 569;  in  Ohio,  53,  491  ff.;  in 
Oregon,  466  ff.;  in  Rhode  Island, 
535  ff.;  in  South  Dakota,  617,  618;  in 
Texas,  564,  565;  in  Utah,  80 ff.;  in 
Vermont,  542-544;  in  Washington, 
366  ff.;  in  West  Virginia,  332  ff.;  in 
Wisconsin,  257  ff. 
Corporations,  Federal  taxation  of,  39. 
Interstate,  Taxation  of,  in  Rhode 

Island,  537. 
Returns  of,  to  tax  commission,  in 
Indiana,    166;    in   Kansas,   441, 
443;   in  Massachusetts,  216,  217; 
in  Michigan,  304;   in  Minnesota, 
409;  in  New  Jersey,  105;  in  New 
York,  198;  in  Oregon,  468;  in  Utah, 
81;  in  Washington,  363;  in  West 
Virginia,  333;  in  Wisconsin,  259. 
Correspondence  between  tax  commission 
and  local  officials,  in  Minnesota,  414, 
415;  in  Wisconsin,  271. 
Cost  of  government.  Investigation  of,  in 
Minnesota,  423;    in  Wisconsin,   282, 
283. 
Cost  of  reproduction,  Use  of,  in  corpo- 
rate assessment,  in  Washington,  365, 
366;  in  Wisconsin,  262. 
County  assessor,  in  Alabama,  557;    in 
Arizona,  606;    in  Colorado,  603;    in 
Indiana,  151;  in  Kansas,  429,  447;  in 
Nevada,  620;  in  North  Carolina,  575; 
in  Oregon,  473;   in  Washington,  371; 
in  West  Virginia,  331. 
County  auditor,  Powers  of,  in  assess- 
ment, 17,  18. 
County  board  of  review,  in  New  Jersey, 
116;  in  West  Virginia,  332. 


County  board  of  tax  assessors,  in 
Georgia,  581. 

County  budget  commission,  in  Ohio,  487, 
note. 

County  option,  in  Oregon,  473;  in  Wash- 
ington, 379. 

County  supervisor  of  assessments  in 
Maryland,  547;  in  Minnesota,  387;  in 
Wisconsin,  271,  272. 

County  tax  commissioner,  in  Alabama, 
557,  559.  560. 

County  tax  rates,  Increase  of,  in  Minne- 
sota, 389,  note. 

Credits,  Exemption  of,  in  Alabama,  559; 
in  Washington,  377.  See,  also,  moneys 
and  credits. 

Custis,  v.,  377. 

Davis,  W.  W.,  576. 

Day,  E.  E.,  8,  10,  11,  15,  19. 

Debts,  Deductions  for,  in  Kansas,  454; 
in  New  Jersey,  116. 

Decentralized  tax  administration,  De- 
fects of,  10. 

Denver,  Assessments  in,  598. 

Department  of  Internal  Revenue,  134, 

135- 

Deposits  in  savings  banks,  Exemption  of, 
in  New  Hampshire,  531,  532. 

Deputy  state  tax  commissioner,  in 
Massachusetts,  215;  Duties,  of,  229. 

Deputy  tax  commissioners,  in  Ohio,  503. 

Detroit,  Equalization  of  property  as- 
sessments in,  299. 

Dewey,  D.  R.,  20. 

Direct  tax,  in  Nevada,  619;  in  New 
Jersey,  100,  104;  in  New  York,  57, 
185;  in  the  southern  states,  31.  See, 
also,  State  Tax. 

District  assessor.  See  Deputy  tax  com- 
missioner. 

District  boards  of  complaint,  in  Ohio, 

503- 
Dittey,  R.  M.,  502. 
"  Dollar  sales,"  Use  of,  in  Wisconsin, 

249. 
Domestic    animals.    Assessment   of,    in 

North  Carolina,  573. 


INDEX 


663 


Domestic  corporations,  Taxation  of,  in 
Indiana,  164;  in  Illinois,  74;  in  Massa- 
chusetts, 216;  in  New  Jersey,  106;  in 
Ohio,  494;  in  Rhode  Island,  537. 

Doomage,  11;  in  Massachusetts,  225;  in 
Wisconsin,  271. 

Douglas,  C.  H.  P.,  14. 

Dunn,  J.  P.,  29,  150,  162. 

Durand,  E.  D.,  30. 

Election  of  tax  commissioners,  in  Ari- 
zona, 605. 
Electric  railroads.  Taxation  of,  in  Wash- 
ington, 368;  in  Wisconsin,  264  ff. 
Equalization,  in  Alabama,  562;    in  Ari- 
zona, 605  fif.;   in  California,  84flf.;   in 
Colorado,    597  ff.;     in    Connecticut, 
512  ff.;   in  Illinois,  66  ff.;   in  Indiana, 
152  ff.;    in  Georgia,  580;    in  Kansas, 
4278?.;   in  Kentucky,  590;   in  Maine, 
118  ff.;    in  Massachusetts,  223  ff.;    in 
Michigan,     294  ff.;      in     Minnesota, 
393  ff.;     in    Nevada,    621;     in    New 
Hampshire,  522,  525;   in  New  Jersey, 
100  ff.;   in  New  York,   57  ff.,  185  ff.; 
in  North  Carolina,  571;  in  Ohio,  47, 
482  ff;    in  Oregon,  461  ff.;    in  South 
South  Dakota,  612,  613,  616;  in  Texas, 
562,  563;  in  Utah,  77  ff.;  in  Vermont, 
541,  542,  544;  in  Washington,  353  ff.; 
in  West  Virginia,  341,  342;  in  Wiscon- 
sin, 241  ff.;  in  Wyoming,  593. 
Equalization,    between    corporate    and 
other  property,  in  Indiana,  170; 
in  Kansas,  437,  438;  in  Michigan, 
310,  311;   in  Minnesota,  411;   in 
New  York,  200;   in  Ohio,  56;   in 
Oregon,   468,   469;    in   Washing- 
ton, 360,  361;   in  Wisconsin,  252 
and  note. 
By   appeal,    in    Georgia,    583;     in 
Indiana,  152,  153;  in  New  Jersey, 
108,  110-112;  in  New  York,  195; 
in  Ohio,  490;  in  Oregon,  463. 
By  county  boards,  in  Alabama,  559; 
in  California,  85,  90,  91;  in  Colo- 
rado, 600;    in  Georgia,   581;    in 
Indiana,    177;    in    Kansas,   436, 


note;  in  New  Jersey,  107,  note, 
108;  in  New  York,  192,  193;  in 
South  Dakota,  613,  note;  in  Texas 
563. 

Failureof,  in  California,  93;  in  Con- 
necticut, 515,  516;  in  Indiana, 
159,  160;  in  Illinois,  69,  70;  in 
Kansas,  438;  in  Maine,  126,  127; 
in  Massachusetts,  227;  in  New 
Jersey,  115;  in  Ohio,  51;  in  South 
Dakota,  614;  in  Utah,  80. 

Intra-county,  in  Indiana,  160,  note, 
177,  178;  in  Kansas,  435,  436, 
note;  in  New  York,  192,  193;  in 
North  Carolina,  575;  in  Ohio,  489; 
in  Oregon,  463;  in  Washington, 
361  and  note;  in  West  Virginia 
341,342. 

Local  influence  in,  in  Illinois,  71,  72, 
note;  in  Michigan,  292,  note; 
297,298;  in  New  Jersey,  107;  in 
New  York,  192. 

Methods  of,  in  Arizona,  606,  607; 
in  California,  91,  92;  in  Colorado, 
598,  599;  in  Connecticut,  514, 
515;  in  Illinois,  67,  68;  in  Kansas, 
431,  436,  437;  in  Maine,  109;  in 
Massachusetts,  224,  225;  in 
Michigan,  294-296;  in  Mirme- 
sota,  393,  394,  396;  in  New 
Hampshire,  525,  526;  in  New 
Jersey,  109;  in  New  York,  58,  59, 
187,  189;  in  North  Carolina,  571, 
572;  in  Ohio,  49,  50,  485;  in  Ore- 
gon, 461,  462;  in  South  Dakota, 
616;  in  Utah,  79;  in  Washington, 
356,  357;  in  Wisconsin,  242  ff.;  in 
Wyoming,  594. 

Ratios  of,  in  Indiana,  158;  in  Kansas 
428,  429;  in  Michigan,  246,  255; 
in  Minnesota,  393,  394;  in  New 
Hampshire,  525;  in  New  Jersey, 
109;  in  New  York,  61-65;  185, 
186,  194,  212,  213;  in  Ohio,  483; 
in  Oregon,  461;  in  Washington, 
356;  in  Wisconsin,  246,  255. 

Results  of,  in  Arizona,  606,  607;  in 
California,  87,  89,  91;    in  Colo- 


664 


INDEX 


rado,  598;  in  Connecticut,  515, 
516;  in  Georgia,  581,  582;  in 
Illinois,  71;  in  Indiana,  154-158; 
in  Kansas,  432-435,  438;  in 
Maine,  1 21-124;  va.  Massachusetts 
227;  in  Michigan,  299,  300;  in 
Minnesota,  396,  399,  400;  in  New 
Hampshire,  515,  516;  in  New 
Jersey,  iii,  112,  115;  in  New 
York,  59,  66,  187;  in  North 
Carolina,  574,  575;  in  Ohio,  51, 
486,  487;  in  Oregon,  464-466;  in 
South  Dakota,  615,616;  in  Wash- 
ington, 354,  359;  in  West  Virginia 
342;  in  Wisconsin,  253-256;  in 
Wyoming,  595. 
Equalization  commissioners,  in  Massa- 
chusetts, 223,  224. 
Equalization  court,  proposed,  in  New 

Jersey,  113. 
Equipment  companies.  Taxation  of,  in 

Kansas,  444;  in  Wisconsin,  266. 
Escheats,  in  Washington,  381. 
Evasion,  Early  evidence  of,  21,  22. 
Excise  taxes,  in  Kansas,  444;  in  Maine, 
128,  129;  in  Massachusetts,  222;    in 
Ohio,  480,  493. 
Ex  officio  assessment  boards.  Failure  of, 

37;  in  Wisconsin,  238. 
Ex  officio  members,  Drawbacks  of,  7;  in 
Indiana,  152;    in   Michigan,   293  ff.; 
in  New  York,  187;    in  Oregon,  460; 
in  South  Dakota,  614;  in  Texas,  564. 
Expenditures  of  government,  Investiga- 
tion of,  in  Minnesota,  423. 
Express    companies.    Taxation    of,    in 
Kansas,  444;    in  Michigan,  304,  305; 
in  Ohio,  493;  in  Washington,  368;   in 
Wisconsin,  266. 

Faculties,    Taxes    on,    in    Connecticut, 

512. 

Fairlie,  J.  A.,  23,  8,  15,  65,  66,  70,  73,  74, 

75,  76. 
Farm  Animals,  Assessment  of,  in  Kansas, 
453;  in  Ohio,  505. 
Method  of  assessing,  in  Wisconsin, 
251,  note. 


Farm  lands.  Assessment  of,  in  North 
Carolina,  572. 
Assessed  value  of,  compared  with 
census    value,   in    Indiana,    154, 
156;  in  Minnesota,  400. 
Classification  of,  in  Kansas,  433;  in 
New  York,  58. 
Farmers,     Discrimination    against,     in 

Maine,  125,  in  Wisconsin,  255. 
Favoritism,  in  railroad  assessment,  36. 
Federal  charter,  Right  of  state  to  tax  cor- 
poration holding,  94,  95. 
Federal  income  tax  returns,  Use  of,  in 

Connecticut,  518. 
Federal  taxation  of  corporations,  39. 
Fee  system, Evils  of,inWestVirginia,348. 
Fellows,  W.  B.,  7,  526,  529. 
Finlay,  J.  R.,  315,  316. 
Florida  special  tax  commission,  576. 
Florida  tax  commission,  576  fif.;   Powers 

of,  577- 

Ford  special  franchise  tax,  in  New  York, 
198. 

Franchises,  Taxation  of,  in  California, 
90,  94,  95,  97,  98;  in  Indiana,  167;  in 
Kansas,  443;  in  Massachusetts,  220; 
in  Minnesota,  413;  in  New  Jersey, 
104,  106;  in  Ohio,  480,  494,  500;  in 
Utah,  81.  See,  also,  Special  franchises. 

Freeman,  D.  R.,  8,  32. 

Freight  line  companies,  Taxation  of,  in 
Wisconsin,  266. 

Friedman,  H.  G.,  28. 

Flagler  estate,  Assessment  of,  580. 

Galbraith  law,  310. 

Garfield,  J.  R.,  13. 

General  Court,  Equalization  by,  in 
Massachusetts,  224,  225. 

General  property  tax.  Decentralized 
administration  of,  7ff.;  in  Cali- 
fornia, 85;  in  Indiana,  150;  in 
Kansas,  424;  in  Massachusetts,. 
214,  215,  223;  in  Michigan,  289; 
in  Minnesota,  385 ;  in  New  Jersey 
100;  in  Oregon,  458,  459;  in 
Washington,  352;  in  West  Vir- 
ginia, 330;  in  Wisconsin,  237. 


INDEX 


66s 


Operation  of,  under  improved  ad- 
ministration,  in    California,    98- 
100;     in    Connecticut,    516;     in 
Indiana,    155;    in    Kansas,   454; 
in  Michigan,  323;  in  New  Hamp- 
shire, 532;   in  Ohio,  505-507;   in 
Washington,  378,  379;    in  Wis- 
consin, 273,  274,  277. 
Georgia  tax  commissioner,  580  ff . 
Granger  movement,  6,  33. 
Greenbacks,  Taxation  of,  in  Indiana,  175. 
Gross  earnings,  as  a  factor  in  railroad 

valuation,  in  Indiana,  167,  168. 
Gross  earnings  defined,  in  Ohio,  499. 
Gross  earnings  tax,  in  California,  96,  97; 
in  Connecticut,  518;  in  Maine,  128;  in 
Michigan,  302;   in  Minnesota,  408  ff.; 
in  North  Carolina,  569;   in  Ohio,  492, 
493;    in  Rhode  Island,  538;    in   Ver- 
mont,  542;    in  Wisconsin,   239,   258, 
268. 
Gross,  earnings.  Taxation  of,  compared 
with  ad  valorem  tax,  262. 
Unconstitutional,  in  Vermont,  543. 
Gross   receipts,    Ratio   of,    to   assessed 
valuation,  in  Ohio,  498. 

Haig,  R.  M.,  76,  603. 

Hanly,  Governor,  163. 

Hanna,  H.  S.,  546,  548. 

Hansel,  C.  F.,  105,  106. 

Harmon,  Governor,  502. 

Hart,  W.  0.,  31. 

Hedrick,  W.  P.,  289. 

Herreid,  Governor,  614. 

Hollander,  J.  A.,  30. 

Home  rule.  The  issues  involved  in,  42, 43. 

Household    goods.    Exemption    of,    in 

Oregon,  473. 
Hovey,  Governor,  150. 
Howard,  T.  E.,  150. 
Howard,  G.  E.,  8. 
Howe,  S.  T.,  426,  434. 
Huebner,  S.  S.,  28. 
Huse,  C.  P.,  30. 

Illinois  special  tax  commission,  1 7,  69,  7 1 . 
Illinois  state  board  of  equalization,  66  fT. 


Income  tax,  in  Massachusetts,  216,  228, 
235i  236;  in  South  Carolina,  588, 
in  Wisconsin,  278  ff. 
Cost  of  administration  of,  in  Wis- 
consin, 280. 

Incidence  of,  in  Wisconsin,  256. 
Proposed,  in  New  York,  59,  191. 
Income  tax  assessors,  as  field  agents  of 
the  tax  conmiission,  in  Wisconsin,  245. 
Indiana  commission  on  taxation,  162. 
Indiana  state  board  of  tax  commissioners, 

177  ff. 
Indictment,  Use  of,  to  punish  evasion,  in 

Chicago,  76. 
Inheritance  tax,  in  Connecticut,  519;  in 
Massachusetts,     216,     234,     235;     in 
Washington,  380;    in  West  Virginia, 
347,  348;  in  Wisconsin,  281,  282. 
Initiative  and  referendum,  472. 
Intangible  assets  tax,  in  Alabama,  561; 

in  Texas,  563,  564. 
Intangible  property.  Growth  of,  29. 
Intangible  values  in  corporate   assess- 
ment, in  Kansas,  442,  443,  in  New 
Jersey,  103;  in  Washington,  364,  365; 
in  Wisconsin,  262,  263. 
Intangibles,  Assessment  of,  in  Alabama, 
558,  559;  in  Kansas,  454,  457;  in 
Maine,!  24;  in  Massachusetts, 230; 
in  North  Carolina,  573;  in  Ohio, 
510;  in  West  Virginia,  340,  344. 
Concentration  of,  in  certain  tax  dis- 
tricts, in  Massachusetts,  233. 
Escape  of,  29,  30;  in  Indiana,  161, 
176;    in  Maine,  124;    in  Massa- 
chusetts, 230,  233;  in  New  York, 
190;  in  Ohio,  505,  506;  in  Rhode 
Island,   541;    in   South   Dakota, 
618;  in  West  Virginia,  242. 
Exemption    of,    in    Massachusetts, 
235;    in  Washington,  376,     See, 
also.  Moneys  and  Credits. 
In   special   franchise   valuation,   in 
New  York,  202. 
Interborough  Rapid  Transit  Company, 

204. 
Investment  in  exempt  securities,  in  New 
Hampshire,  531. 


666 


INDEX 


Iron  mines,  Assessment  of,  in  Michigan, 
317;  in  Minnesota,  404  ff. 

Iron,  Tonnage  and  valuation,  in  Minne- 
sota, 407. 

Jamaica  Water  Supply  Company,  191. 

James,  A.  E.,  248,  255. 

Judicial  review,  in  New  York,  195,  196, 

198,200;  inOregon,  466, 47s;  in  West 

Virginia,  336,  342,  346. 
Judson,  F.  N.,  9,  15. 

Kansas  special  tax  commission,  25,  426, 
438. 

Kansas  tax  commission,  424  ff.  Appro- 
priations for,  147. 

Kelly  law,  491. 

Kennan,  K.  K.,  279. 

Kentucky  tax  commission,  589,  590. 

Kinsman,  D.  O.,  278. 

Lake  Shore  railroad,  Assessed  valuation 

of,  in  Ohio,  55. 
Lands,  Assessment  of,  in  Georgia,  584; 
in  Nevada,  622;  in  Oregon,  464. 
Average  value  of,  per  acre  in  New 

York,  1850  to  1890,  65,  note. 
Classification  of,  in  Arizona,  606;  in 
Illinois,  68;    in  Maine,  120;    in 
New  York,  58,  59;  in  Ohio,  21. 
Timber,  Assessed  valuation  of,  in 

Washington,  375,  note. 
Wild,Taxation  of,  in  Maine,  125,126. 
Lands  and  buildings,  Assessment  of,  in 
Illinois,    69;     in    Indiana,    181;     in 
Kansas,  452;    in  Minnesota,  402;    in 
Oregon,  464;    in  West  Virginia,  341, 
note.  See,  also,  Real  estate. 
Leaseholds,  Taxation  of,  in  West  Vir- 
ginia, 344,  345. 
Leser,  O.,  24,  549. 

License  taxes,  in  North  Carolina,  569;  in 
Oregon,  467;  in  Washington,  381;  in 
West  Virginia,  345-347. 
Live  stock,  Assessment  of,  in  Florida 
579;  in  Maine,  120;  in  New  Hamp- 
shire, 523;  in  Nevada,  622;  in  Ohio, 
55;  in  Oregon,  462. 


Live   stock  interests.   Influence   of,   in 

Nevada,  621. 
Local    accounting.    Supervision    of,    in 

Wisconsin,  282,  283. 
Local    assessments,    InequaUty    of,    in 
Kansas,  435. 
Progress  in,  Wisconsin,  277. 
Local    assessors.    Qualifications    of,    in 

Wisconsin,  272.    See,  also.  Supervision 

of  local  assessments. 
Local  autonomy,  7. 
Local  government,  8. 
Local  officials.  Failure  of,  in  Connecticut, 

519,  520. 
Local  option,  41,  42,  43,  note,  473,  474. 
Local  pubUc  utilities.  Assessment  of,  in 

Wisconsin,  269,  270. 
Logs,   and   lumber.   Assessment  of,   in 

Minnesota,  396. 
Lots  and  improvements,  in  Indiana,  181 ; 

in  Kansas,  452;  in  Minnesota,  402;  in 

Oregon,  464. 

Maine  board  of  state  assessors,  in  ff. 
Maine  special  tax  commission,  119,  124, 

126. 
Maryland  special  tax  commission,  26, 

548,  550,  SSI- 
Maryland  state  tax  commissioner,  550. 
Maryland  tax  commission,  546  ff . 

Powers  of,  547. 
Massachusetts  commission  on  taxation, 

217,  228,  230. 
Massachusetts  state  tax  commissioner, 

214  ff. 
Mathews,  J.  M.,  8,  15,  16,  100. 
McCrea,  R.  C,  6,  34,  35. 
Merchandise,  Assessment  of,  in  Ohio, 

S07- 
Merchants'  and  manufacturers'  stocks, 

Equalization  of,  in  Wisconsin,  252. 
Mellette,  Governor,  614. 
Michigan  board  of  state  tax  commis- 
sioners, 289  ff. 
Reasons  for  opposition  to,  291-293. 
Michigan   commission  of  inquiry  into 

taxation,  311,  313,  318,  323. 
Miller,  E.  T.,  562. 


INDEX 


667 


Mines  and  mineral  resources,  Survey  of, 

in  Alabama,  561. 
Mines,  Appraisal  of,  in  Michigan,  315, 
316. 
State  assessment  of,  38. 
Taxation  of,  in  Arizona,  608,  609;  in 
Michigan,  314  ff.;    in  Ohio,  491; 
in  West  Virginia,  337,  338,  345; 
in  Utah,  82. 
Theory  of  appraisal  of,  in  Michigan, 

317- 
Minnesota  tax  commission,  18,  24,  36, 

385  ff- 
Missouri  tax  commission,  590,  591. 
Money,  Assessment  of,  in  California,  89; 
in  Kansas,  454;    in  Maine,  124  and 
note;    in   Minnesota,   416;    in   New 
Hampshire,  531;  in  Washington,  377, 
378;  in  West  Virginia,  343,  344. 
Moneys  and  Credits,  Assessment  of,  in 
Massachusetts,  232;  in  Ohio,  505. 
Exemption  of,  in  Washington,  377. 
Taxation  of,  in  Minnesota,  416,  419, 

420. 
Of  corporations,   Local  apportion- 
ment of,  in  Ohio,  498. 
Moore,  J.  R.,  72. 

Mortgages,  Assessment  of,  in  Indiana, 

176;  in  Kansas,  454;  in  Michigan, 

321,  322;   in  Minnesota,  419;   in 

Wyoming,  495. 

Exemption  of,  in  California,  88;   in 

Wisconsin,  256. 
Taxation  of,  in  California,  88,  90; 
in  Massachusetts,   220,   221;    in 
New  York,  206 ff.;  in  Kansas, 438; 
in  Ohio,  507;   in  Wisconsin,  256. 

National  banks,  Taxation  of,  in  Massa- 
chusetts, 222,  223. 
Net  earnings,  as  a  basis  of  corporate 
valuation,  in  Ohio,  496;    in  Oregon, 
469,  470. 
Capitalization  of,  in  New  York,  203; 
in  Ohio,  496;    in  West  Virginia, 

ass- 
Net  earnings  of  mines,  as  a  factor  in 
mine  assessment,  in  Arizona,  607. 


Net  income,  Proportion  of,  taken  in  taxa- 
tion in  Maine,  125. 
Net  proceeds  of  mines,  in  Utah,  82. 
Nevada  tax  commission,  619  fT. 
New  Hampshire  special  tax  commission 

528. 
New  Hampshire  tax  commission,  521  ff.; 

Powers  of,  524. 
New  Jersey,  Corporation  taxes  in,  loi  fif. 
State  board  of  assessors,  loi  fT. 
State  board  of  equalization,  114  ff. 
State  board  of  taxation,  106  ff. 
New  Mexico  tax  commission,  622,  623. 
New  York  board  of  state  assessors,  57  ff. 
New  York  City,  Assessments  in,  188. 

Tax  department  of,  62. 
New  York  special  tax  commission,  60, 

note,  182,  184,  207. 
New  York  state  board  of  equalization, 

Methods  of,  59. 
New  York  state  conference  on  taxation, 

192. 
New  York  tax  commission.  Appropria- 
tions for,  143. 
Functions  of,  184,  185. 
Organization  of,  142. 
Recommendations  of,  211. 
Nichols  Law,  493. 
Nightingale,  H.  T.,  72. 
North  Carolina  tax  commission,  569  ff. 
North    Dakota    tax   commission,    511, 
note. 

Oath,  Increased  severity  of ,  13, 14. 

Ohio  state  board  of  equalization,  47  ff. 
Procedure  of,  49. 
Failure  of,  50,  51. 

Ohio   state   board   of   equalization   for 
Railroads  and  Banks,  53  ff. 

Ohio  special  tax  commission,  50,  52,  55, 
56,  479,481,492. 

Ohio  state  tax  commission,  479  ff. 
E.xpenditures  of,  148. 

Oil  and  gas,  Taxation  of,  in  West  Vir- 
ginia, 344, 345. 

Ontario  railroad  commission,  290,  306. 

Operating  property  of  railroads.  Assess- 
ment of,  in  Washington,  367. 


668 


INDEX 


"  Ordinary  Business  Corporations,"  551. 
Oregon  state  tax  commission,  459  ff. 
Organization  of  tax  commissions,  Tabu- 
lar exhibit  of,  132,  133. 

Parrett-Whittemore  Law,  490,  500. 
Partisan  politics,  in  Ohio,  504. 
Personal  property.  Assessment  of,  in 
Colorado,  625;  in  Indiana,  181; 
in  Kansas,  452,  457;  in  Minne- 
sota, 417;  in  New  Hampshire, 
530,  554;  in  New  York,  189;  in 
North  Carolina,  573,  592;  in 
Ohio,  506,  507,  509,  510;  in  Ore- 
gon, 475,  476;  in  South  Dakota, 
626;  in  Washington,  376,  384;  in 
West  Virginia,  331,  343,  344,  351. 

Decreased  assessment  of,  in  New 
York,  189;  in  Vermont,  545. 

Defective  assessment  of,  in  Minne- 
sota, 396. 

Efforts  to  list,  in  Michigan,  321,  323. 

Equalization  of,  in  Indiana,  158,  and 
note;  in  Kansas,  437;  in  Michi- 
gan, 297;  Minnesota,  395,  396, 
403;  in  Oregon,  462;  in  Wiscon- 
sin, 250,  251,  and  note. 

Escape  of,  in  Connecticut,  515,  516; 
in  New  Jersey,  115. 

Exemption  of,  in  Oregon,  476;  in 
Washington,  376;  in  Wisconsin, 
250. 

Extension  of  list  of,  in  Kansas,  455; 
in  Washington,  355,  375;  in  West 
Virginia,  343. 

Failure  to  equalize,  in  New  York, 
189;  in  Ohio,  490. 

Proportion  of,  to  total  assessment,  in 
Connecticut,  516;  in  Kansas, 
438;  in  Minnesota,  403. 

Sworn  inventory  of,  in  New  Hamp- 
shire, 531;   in  Ohio,  504;   in  Ver- 
mont, 545. 
Peters,  T.  C,  58. 
Phelan,  R.  V.,  22. 
Phillips,  J.  B.,  602. 

Physical  valuation  of  railroads,  in  Mich- 
gan,  307,  308;  in  New  Jersey,  102;  in 


Wisconsin,  260;    by  Interstate  Com- 
merce Commission,  39. 

Physical  valuation  of  street  railways,  in 
Wisconsin,  265. 

Pingree,  Governor,  289,  290,  301. 

Pipe  lines,Taxation  of  ,in  Kansas,443,444. 

Plaisted,  Governor,  118. 

Plehn,  C.  C,  5,  88,  89,  94,  97. 

Political  Code  of  California,  87. 

Political  influences  in  local  assessment,  in 
Alabama,  557;  in  Colorado,  603;  in 
Michigan,  292,  and  note,  293,  297;  in 
Ohio,  490. 

Political  manipulation  of  tax  system,  in 
Washington,  382,  383. 

Polleys,  T.  A.,  247. 

Pothier,  Governor,  533. 

Private  business  corporations,  Taxation 
of,  38;    in  Connecticut,  518;    in 
Minnesota,  413;  in  Ohio,  501. 
Central  assessment  of,  reconmiended 
in  Michigan,  318. 

Private  office  valuation  of  corporate 
property,  in  Michigan,  306;  in  Minne- 
sota, 410;  in  Wisconsin,  260. 

Public  accounting.  Central  supervision 
of,  in  West  Virginia,  348,  349. 

Public  expenditures.  Increase  of,  27,  28. 

Public  service  commission  of  Washing- 
ton, 365. 

Public  service  corporations.  Taxation  of, 
in  Connecticut,  518;  in  Indiana, 
i7off.;  in  Illinois,  72  ff.;  in  Ohio, 
491  ff.;  in  Rhode  Island,  538;  in  Wis- 
consin, 266  &.  See,  also.  Corporations, 
Taxation  of. 

Pullman  company.  Taxation  of,  in  Cali- 
fornia, 94;  in  Michigan,  312;  in 
Wisconsin,  268,  269. 

Purdy,  L.,  188. 

Quadrennial  assessment  of  real  estate,  in 
Kansas,  436,  448. 

Railroad  and  canal  property.  Classifica- 
tion of,  in  New  Jersey,  101. 

Railroad  and  warehouse  commission  of 
Minnesota,  409 . 


INDEX 


669 


Railroad  assessments,  Apportionment  of, 
in  Oregon,  471. 

Central  supervision  of,  in  Ohio,  54. 
Railroad  taxation.   Central  administra- 
tion of,  in  New  Hampshire,  526,  522. 
Railroads,    Assessed    valuation    of,    in 
Illinois,  73;    in  Indiana,  168;    in 
Michigan,  329;    in  Washington, 
365,  note;    in  West  Virginia,  336; 
in  Wisconsin,  263. 

Comparison  of  methods  of,  262. 

Local  and  equalized  valuations  of, 
in  Ohio,  54. 

Local  assessment  of  the  operating 
property  of,  in  New  Jersey,  104; 
in  Wisconsin,  263,  264. 

Method  of  assessing,  in  Indiana,  167, 
168;  in  Kansas,  441,  442;  in 
Maine,  129;  in  Michigan,  306- 
309;  in  Ohio,  495,496;  in  Oregon, 
469;  in  Texas,  566;  in  Wisconsin, 
286-288. 

Returns  of,  to  tax  commission.  See 
Corporations,  Returns  of,  to  tax 
commission. 

Physical  examination  of,  in  Kansas, 
442. 

Physical  valuation  of,  in  Michigan, 
303;  in  New  Jersey,  102;  in  Wis- 
consin, 258,  261. 

Revaluation  of,  in  New  Jersey,  104, 

Taxes  paid  by,  in  Ohio  and  else- 
where, 499. 

Railroad  valuation,  for  rate  making  and 
taxation  purposes,  566. 

Raper,  C.  L.,  574. 

Rate  of  taxation.  Average.  See  Average 
rate  of  taxation. 

Ratio  of  assessed  to  true  value  of  per- 
sonal property,  by  occupational  groups 
in  Wisconsin,  255. 

Ratio  of  assessed  to  true  value,  in 
Indiana,  157;  in  Nevada,  621;  in 
New  Hampshire,  525;  in  New  York, 
185-187;   212,  213;  in  Ohio,  52,  note, 

493- 
Rawles,  W.  A.,  21,  149,  150,  162. 


Real  and  personal  property.  Assessment 
of,  in  Alabama,  557;  in  Maine,  121;  in 
New  Hampshire,  530;  in  New  Jersey, 
115;  in  Utah,  78. 
Real  estate,  Assessment  of,  in  Indiana, 
175;    in    Kansas,   433,   452;    in 
Minnesota,  397;    in  New  Hamp- 
shire, 554;   in  Ohio,  48,  483,  486; 
in  South  Carolina,  585. 
Corporate,  Assessment  of,  37. 
Real  Estate  Dealers'  Association,  158. 
Real  estate,  Equalization  of.  See  Equali- 
zation. 
Expert    appraisal   of,   in    Arizona, 

606. 
Loan  value  of,  as  guide  in  equaliza- 
tion, in  Oregon,  462. 
Reassessment  of.  See  Reassessment. 
Reappraisal  of  railroad  and  canal  prop- 
erty, in  New  Jersey,  104-106. 
Reassessment,  in  Kansas,  451;  in  Mary- 
land, 548,  549;  in  Michigan,  325; 
in  Minnesota,  415;  in  New  Hamp- 
shire, 525;    in  New  Jersey,  115; 
in  New  York,  193,  196;   in  Ohio, 
490,  502;    in  West  Virginia,  332, 
341;  in  Wisconsin,  276,  286. 
Of  moneys  and  credits,  in  Minne- 
sota, 421. 
Results  of,  in  Wisconsin,  276,  286. 
Reed,  Governor,  576. 
Representative  sales,  Weakness  of,  485. 
Reserve  Fund,  in  New  Jersey,  108,  109. 
Revenue  crisis,  in  California,  99. 
Revenue  sources.  Additional,  in  Rhode 

Island,  539,  540. 
Review  and  equalization  by  local  boards, 

14-17. 
Review  of  assessments,  by  state  board  of 
equalization,  in  Colorado,  599. 
By  state  tax  commission,  in  Kansas, 
451;    in  Michigan,  324,  326;    in 
Ohio,  488;  in  Wisconsin,  274  flf. 
Rhode   Island    board   of    tax    commis- 
sioners, 532  fT. 
Rhode  Island  tax  act  of  191 2,  535. 
Robinson,  E.  V.,  409. 
Robinson,  M.  H.,  46. 


670 


INDEX 


Rockefeller   estate,    Assessment    of,    in 

Ohio,  501. 
Rolling  stock,  Assessment  of,  in  Kansas, 

441. 
Rural  interests.  Discrimination  against, 

in  Wisconsin,  255. 

Salary  of  tax  commissioners,  138  ff. 
Sales  data,  Collection  and  scrutiny  of, 
in  Wisconsin,  243  fT. 
Criticism  of,  in  Wisconsin,  246,  247. 
Tests  of,  in  Wisconsin,  243,  244,  248, 

284,  285. 

Use  of,  in  New  Jersey,  109;  in  New 

York,  194;  in  Ohio,  49.  ^ee,  also. 

Methods    of    Equalization    and 

Sales  method. 

Sales  department.  Cost  of,  in  Wisconsin, 

250. 
Sales  method,  Assumptions  of,  485. 

Use  of,  in  Colorado,  600;  in  Kansas, 
428,  429;   in  Michigan,  294,  295; 
in  Minnesota,  393,  394;   in  New 
Hampshire,  523;    in  New  York, 
61,65;  in  Oregon,  461;  in  Wash- 
ington, 356,  357;    in  Wisconsin, 
242  fT. 
Defects  of,  in  Kansas,  428,  429,  435; 
in  Minnesota,  393,  394;  in  Wash- 
ington, 356,  358. 
Objections  to,  by  Minnesota  courts, 
249,  note;  in  Michigan,  295,  296; 
in  Ohio,  484,  485. 
Sales  rejection.  Causes  of,  in  Wisconsin, 

246. 
Sampling,  Use  of,  in  Michigan,  296;   in 

New  Hampshire,  525. 
Sian  Francisco  banks,  90,  91. 
San  Francisco,  Tax  rates  in,  99,  note. 
San  Mateo  county,  Evasion  in,  85. 
Savings    deposits.   Escape    of,  in  New 
York,  190. 
Taxation  of,  in  Massachusetts,  222. 
Schedule  of  taxable  values  for  guidance 
of  assessor,  in  Massachusetts,  10,  19; 
in  Vermont,  20. 
School  fimd,  in  New  Jersey,   108;    in 
Texas,  562. 


Schwab,  J.  C,  15,  193. 

Schmeckebier,  L.  F.,  581. 

School  tax,  in  South  Carolina,  588. 

Secrist,  H.  C,  43. 

Securities,  Taxation  of,  in  Ohio,  506. 

Selection  of  tax  commissioners.  Basis  of, 
139  flf. 

Seligman,  E.  R.  A.,  2,3,  38,  39,  183,  201, 
208,  270,  278,  423. 

Self-assessment,  10. 

Separation  of  the  sources  of  state  and 
local  revenue,  in  California,  93,  96;  in 
Florida,  577;  in  Kansas,  444,  445;  in 
Ohio,  481,  498,  499;  in  Oregon,  471; 
in  Vermont,  544;    in  West  Virginia, 

339- 
Shaughnessy,  J.  F.,  620. 
Single  tax,  422;  in  California  and  Ohio, 

43,  note;  in  Oregon,  465. 
Single  tax  league  of  Oregon,  43,  note. 
Sleeping  car  companies.  Taxation  of,  in 

Michigan,  304,  305;   in  Ohio,  493;   in 

Wisconsin,  266  ff. 
Snider,  G.  E.,  239,  258. 
Social  reform.  Taxation  for,  in  Oregon, 

472. 
Somers    system,    in    Arizona,    626;     in 

Denver,  600,  note. 
South  Carolina  tax  commission,  584  £f. 
South  Dakota  tax  commission,  612 ff.; 

Powers  of,  615. 
Special  franchise.  Assessment  of,  in  New 
York,  204. 
Defects  in  taxation  of,  205,  206. 
Factors  in  valuation  of,  201-203. 
Taxation  of,  in  New  York,  197  ff. 
Special  franchise  bureau,  in  New  York, 

203. 
Special  tax  commissions.  Establishment 

of,  5  and  note,  29. 
Special  tax  commission,  in  Indiana,  162; 

in  Illinois,  66;  in  Iowa,  29;  in  Maine 

119,  126;  in  Massachusetts,  215,  217; 

in  Michigan,  386;  in  Minnesota,  386; 

in    New    Hampshire,    523;     in    New 

Jersey,  104;    in  New  York,  183;    in 

Ohio,  29,  479;  in  Oregon,  458,  459;  in 

West  Virginia,  331;  in  Wisconsin,  240. 


INDEX 


671 


Spoils  system,  139,  140. 

Sprague,  R.  J.,  125. 

Standard   of   valuation.     See   Basis   of 

valuation. 
State  and  local  assessment  of  property  in 

Wisconsin,  238. 
State  appraisers,  Board  of,  in  Ohio,  480, 

493- 
State  assessment,  in  Wisconsin,  241  ff. 
State  Auditor,  Supervisory  powers  of,  in 

Ohio,  501,  502. 
State  board  of  assessors,  in  Alabama,  555, 
560;    in   Colorado,   601;    in   Kansas, 
439;  in  Maine,  iiSff.;  in  Nevada,  620; 
in  New  Jersey,  102  ff.;   in  New  York, 
57  fT.;  in  Ohio,  480;  in  Wisconsin,  238. 
State   boards   of  corporate  assessment, 
33  ff.  See,  also,  Corporations, Taxation 
of. 
State  boards  of  equalization,  19 ff.;    in 
Alabama,  561,  562;   in  Colorado 
598,   599;    in   Connecticut,   512, 
514;    in  Florida,  31,  note,   576; 
in  Indiana,   151;    in  Minnesota, 
385  ff.;   in  New  Hampshire,  522; 
in  New  Jersey,   100 ff.;    in  New 
York,  23;  in  Ohio,  47  ff.;  in  Ore- 
gon,  458,   note,   459;    in   South 
Dakota,  612;    in  Vermont,  541, 
542;  in  Washington,  352,  355;  in 
Wisconsin,  237;  in  Wyoming,  593. 
Constitutional  provisions  for,  25. 
Methods     of.      See     Equalization, 

Methods  of. 
Methods  of  selection  of,  24,  25. 
Restrictions  on,   26,    27;    in   Cali- 
fornia, 86,  90;  in  Illinois,  67. 
Table  of,  45,  46. 
State  board  of  equalization  of  taxes,  in 

New  Jersey,  ii4ff. 
State  board  of  finance,  in  Connecticut, 

520. 
State  board  of  taxation,  in  New  Jersey, 

106  ff. 
State  board  of  taxes  and  assessments,  in 

New  Jersey,  117,  118. 
State  corporation  commission,  in  North 
Carolina,  569. 


State  debt  of  Indiana,  29,  151. 
State  equalization.  See  Equalization. 
State  excise  board,  in  Washington,  381. 
State  finance,  Investigation  of,  in  Wis- 
consin, 282. 
State  revenue  agent,  in  Texas,  563. 
State  school  of  mines,  406. 
State  tax,  in  Kansas,  445;  in  Maine,  119, 
124;  in  Maryland,  548;  in  Massa- 
chusetts,  28;    in  Michigan,  312; 
in  Minnesota,  412;  in  New  Jersey, 
104;  in  New  York,  23,  57,  185;  in 
Oregon,  463. 
Apportionment  of ,  in  Massachusetts, 

223,  224;  in  Wisconsin,  253. 
Apportionment  of,  on  expenditures, 
in  Connecticut,  515;    in  Oregon, 
459,  460. 
Proportion  of,  paid  by  each  county 

in  Oregon,  478. 
Reduction  of,  in  Ohio,  487. 
State  tax  association,  in  Indiana,  i8o. 
State  tax  commissions,  39  ff.;  Origin  of, 

3,  4;  Table  of,  132,  133. 
State  tax  commissioner,  in  Alabama,  556; 
in   Connecticut,    514;    in   Maryland, 
547,  550;  in  Texas,  563;  in  Washing- 
ton, 353. 
State  tax  commissions.  Appropriations 
and  equipment  of,  141  ff. 
Basis  of  selection  of  members  of, 

138  ff. 
Salary  of,  138. 
State  tax  rate,  reduced,  in  Rhode  Island, 

535,  540. 
Stocks   and   bonds.   Assessment   of,   in 
Kansas,  455;    in  Minnesota,  418;    in 
Washington,  378. 
Stock  and  bond  value,  of  corporations,  in 

Te.xas,  564;  in  Washington,  363. 
Stokes,  Governor,  112, 113. 
Street  railway  and  electric  light  com- 
panies. Assessment  of,  in  Wash- 
ington, 368;  in  Wisconsin,  264  ff. 
Distribution  of  tax  on,  in  Wisconsin, 
266. 
Supervisors  of  assessment,  in  Massachu- 
setts, 226,  231;  in  Wisconsin,  271,  272. 


672 


INDEX 


Supervision  of  local  assessment,  in 
Alabama,  556,  557;  in  Arizona, 
610  ff.;  in  Colorado,  603  ff.;  in 
Kansas,  446  ff.;  ii>  Maine,  127;  in 
Maryland,  547;  in  Massachusetts, 
228;  in  Michigan,  319  ff.;  in 
Minnesota,  414  ff.;  in  New  Hamp- 
shire, 529  ff.;  in  New  York,  191  ff .; 
in  Ohio,  501  ff.;  inOregon,  471  ff.; 
in  Washington,  369  ff.;  in  West  Vir- 
ginia, 338ff.;  in  Wisconsin,  27off. 
Defects  of,  in  Indiana,  178,  179;  in 
Oregon,  472;  in  Washington,  373, 
374;  in  West  Virginia,  338-340; 
in  Wisconsin,  273,  274. 

Sworn  returns.  Failure  of,  in  Vermont, 
545,  546. 

Taussig,  F.  W.,  27. 

Tax  amendment,  in  Ohio,  489. 

Tax  board  of  review,  in  South  Carolina, 

587. 
Tax  burden.  Increase  of,  22. 
Tax  commission,  Reorganization  of,  in 

Nevada,  621. 
Tax  duplicate  of  Georgia,  592. 
Tax    exempt    investments,    in    Massa- 
chusetts, 234. 
Tax  ferrets,  in  Alabama,  558;  in  Iowa, 

13;  in  Ohio,  12. 
Tax  law,  Defects  of,  in  South  Dakota, 

612,613. 
Tax  levies,  in  North  Carolina,  574;    in 

South  Carolina,  586. 
Tax  limit  law,  in  Ohio,  486,  487. 
Tax  maps,  in   Kansas,  433;    in   New 

Jersey,  116. 
Tax  ratee,  in  California,  88,  note;    in 
Indiana,  177,  178. 
Average,  in  Michigan,  312,  327;   in 
Minnesota,    389;     in   West   Vir- 
giania,  344,  note;    in  Wisconsin, 
252,  note. 
General  increase  of,  28. 
Limitation  of,  in  Kansas,  452,  453; 
in  Ohio,  497. 
Tax    reform.    Obstacles    to,    in    North 
Carolina,  574,  575. 


Tax  system  of  New  Hampshire,  Develop- 
ment of,  522. 

Taxes,  Total,  in  New  York,  23;  in 
Michigan,  312. 

Telegraph  companies,  Assessment  of,  in 
Indiana,  i'64;  in  Kansas,  440  in 
Massachusetts,  218;  in  Wisconsin, 
237,  268. 

Tennessee  special  tax  commission,  25. 

Term   of   ofl&ce   of   tax   commissioners, 

135  ff- 

Texas  special  tax  commission,  32,  562. 

Texas  state  tax  board,  562  ff. 

Thomas,  J.  J.,  82. 

Timber  and  timber  lands.  Assessment  of, 
in  Washington,  375,  note. 

Timber  cruise,  in  Maine,  125;  in  Wash- 
ington, 374. 

Townsend,  M.  I.,  60. 

Townsend,  T.  C,  337. 

Township  trustee  as  assessor,  in  Kansas, 
448. 

Township  equalization,  Defects  of,  in 
Kansas,  435,  436. 

Trust  companies.  Taxation  of,  in  Massa- 
chusetts, 221. 

Underassessment,  in  Minnesota,  388;  in 
New  Hampshire,  526;  in  New  Jersey, 
no;  in  North  Carolina,  571;  in 
Oregon,  458,  459;    in  Rhode  Island, 

540. 
Undervaluation,   Competitive,   in   Cali- 
fornia, 85. 
Encouraged,  in  Illinois,  68. 
Undervaluation  of  iron  mines,  in  Minne- 
sota, 405. 
Unit  rule  of  corporate  assessment,   in 

Kansas,  444;   in  Massachusetts,  218; 

in  Oregon,  468;  in  West  Virginia,  334; 

in  Wisconsin,  269. 
United  States  Notes.    See  Greenbacks, 

Taxation  of. 
Urban  real  estate.  Underassessment  of,  in 

Kansas,  432. 
Utah  special  tax  commission,  78,  81. 
Utah  state  board  of  equalization,  77  ff.; 

Defects  of,  83. 


INDEX 


673 


Valuation,  Basis  of,  in  Maine,  122;    in 
Washington,  378. 
Rule  of,  in  New  York,  201,  202. 
Valuation  for  taxation  and  oth^r  pur- 
poses.   Identity    of,    in    Washington, 

365- 

Vermont  commissioner  of  state  taxes, 
541  ff. 

Vermont  commission  on  taxation,  544. 

Vessels,  Taxation  of,  in  Minnesota,  413. 

Vessel  property,  323. 

Vineberg,  S.,  42. 

Value  of  iron  mines.  Factors  in  deter- 
mining, 407. 

Warnes  Law,  482. 

Washington  board  of  tax  commissioners, 

352  ff.;  Appropriations  for,  147. 
Washington  tax  conference,  98. 
Water  and  light  companies.  Equalization 

of,  in  Wisconsin,  252. 


Wells  Fargo  Express  Company  case,  in 

California,  90;  in  South  Dakota,  614. 
West  Virginia  tax  commissioner,  330  ff.; 

Expenses  of,  147. 
Wild  lands,  Assessment  of,  in  Maine, 

126. 
Williamson,  C.  C,  30. 
Winn,  H.,  11. 
Wisconsin  special  tax  commission,  239, 

270. 
Wisconsin  tax  commission,  237  ff.;  Duties 
of,  241. 
Expenses  of,  146. 
Organization  of,  143. 
Wolcott,  O.,  10,  15,  20. 
Wood,  F.  A.,  II,  14,  15,  20,  541. 
Woodbury,  E.  E.,  186. 
Wyoming  tax  commissioner,  593  ff. 

Zander,  C.  M.,  607,  610,  611. 
Zangcrle,  J.  A.,  496. 


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